New HMDA Requirements: Pros/Cons
Here's your "two-minute" talk on the new HMDA requirements.
The CFPB represents the largest regulatory change to the mortgage industry since the creation of HUD. Following in HUD's footsteps, the CFPB has released a hurricane of new regulations. The storm has thrown many new rules at us including LO compensation, ECOA, ability-to-repay, and the upcoming summer 2015 disclosures.
You may also have heard some rumblings regarding the CFPB shaking up the already-taxing HMDA rules. What do you need to know?
Dodd-Frank is requiring the CFPB to expand HMDA collection to encompass the following data points:
Total points and fees
Rate spreads for all loans
"Riskier" loan features (e.g., teaser rates, pre-payment penalties)
Lender information (the channel through which the loan was made, e.g. retail, direct, broker)
Individual loan officer (identified by unique identifier)
Property value
Age - this is due to concern that lenders were taking advantage of the elderly
Credit score - this could help explain why some are denied, and others aren't.
However, the above data points do not comprise an exclusive, closed list. Dodd-Frank allows the CFPB to require additional HMDA data points. The CFPB is considering including the following data points as a "special bonus:"
DTI
Denial reasons are mandatory - currently, it is optional for lenders to explain the reasons for denial (of course, many lenders that report to OCC and FDIC are already required to do this ... for others it will level the playing field)
Results of automated underwriting (this has become an important factor for lenders in whether to approve a loan, so this comes as little surprise)
Qualified mortgage status
CLTV
Discount points - considering problems defining bona fide discount points, let's hope this doesn't make HMDA reporting much more difficult
Risk-adjusted, pre-discounted interest rate (e.g., the rate the consumer should have received absent discount points)
What's your error rate now? What's it going to look like when we have twenty new data points??
But before your head drops to your hands in defeat, consider how these obligations may help you. For example, currently, you might get dinged with a fair lending violation when a large percentage of your denials are given to individuals in a certain minority group. These denial decisions were made due to low credit scores not an ethnic prejudice, and it is a mere coincidence that a higher percentage of that minority group has lower than average credit scores. With the new HMDA data points, both minority status (old requirement) and credit scores (new) will make your reasons for denial easier to prove, defendable, and able to protect you from fair lending trouble.
Don't let your guard down quite yet, though! These data points could make it easier for regulators to locate fair lending concerns with pricing disparity, the CFPB's primary interest as opposed to the more traditional fair lending concerns.
In other news:
HUD's new penalty for fair lending violations seems pretty harsh
Nobody will blame us for attempting to scare people into QM- only lending (perhaps the opposite), but here's Richard Cordray's comments on 4/12/14 to the NCUA: "I don't want any institution ... to be scared out of mortgage lending by consultants and others who say, 'oh, there's all kinds of risk involved in the ability-to-repay rule.' If you do good, solid lending, you're used to doing it, you've made those kinds of hard-headed decisions year in and year out about who's a good credit risk ... [etc.] keep doing what you're doing[.]"
Another example of the new-found powers of state attorney generals? Fannie has cut ties with Colorado's two largest foreclosure law firms after investigations into bill padding by the Colorado AG.
Our appraisal review numbers are up (our first sign of volume turning), and we're hearing volume increases from our clients almost across the board. If you're not yet confident enough in a turn-around to hire full-time, keep in mind we offer professional staffing for residential/consumer lending positions, contact Steve Venti (who you can also thank for that "taxing" pun above) at 781-356-2772 or sventi@scapartnering.com.
Speaking of which ... Donald Rumsfield can use Twitter but cannot do his taxes
Life is a war. As soon as you get comfortable, there's someone there to take it away from you. You've got to fight to protect your family, your business, and to take a stand. Last year Boston had to stand its ground. It rallied around its sports teams, its heroes, its leaders. A year later, the "spot where that bomb went off" is now that "spot where the Red Sox held up the Commissioner's Trophy." So it's fitting that it was a Sox player who summed it up so well when he said,
This is our ******* city, and nobody is going to dictate our freedom.
- David "Big Papi" Ortiz
Thanks so much for reading our weekly newsletters. We're not always going to be perfect, but because we always do our best and try not to overpromise, we hope that we're always going to be trustworthy. Your calls and e-mails are very helpful - please keep contributing.
**These are our opinions. We're not authorized, or willing, to express those of others.**