Will new HMDA rule uncover steering issues that you might resolve NOW?
So we'll deal with the new HMDA changes when they come, not before, right? Right! But be careful that the HMDA changes don't uncover existing fair lending concerns currently hidden from regulatory scrutiny ... concerns that we'd be better off identifying and correcting beforehand.
What am I talking about? Well an example is with steering and HELOCs/HELs vs. cash out refis.
Steering Allegations: Violations of Existing Fair Lending Rules
So historically there have been allegations of discrimination in who gets a HELOC as opposed to a full cash-out refinance. This comes in if minority applicants are more likely (than non-minority applicants) to receive a cash out refinance in cases where a HELOC or HEL was a more affordable and sensible option than a completely new loan. For example, if you have a good rate on a first mortgage already and want a modest amount of cash for vehicle repair or home renovation.
So a problem would exist where, statistically, an African American customer of Bank ABC is more likely to be upsold on a full refinance (than a non-minority applicant) when a cheaper, quicker, HELOC would have been a better option for the particular circumstances.
Significance of HMDA Changes
So the scenario described above already violates the existing fair lending rules in place, if the regulator happened to notice them. That last part is the key. Currently, HMDA data doesn't give regulators any information on HELOCs and very little data on pricing. The importance of the new HMDA changes is that HELOCs are now reportable and we have to report a full suite of pricing information (and no longer on HPMLs only). This is a huge change in terms of what regulators can do at their computer desk before they ever even come on-site to dig through physical files. They'll be able to see a potentially discriminatory HELOC v. Mortgage trend with the click of a button, rather than having to dig through hundreds of physical loan files to try and gather that information. So while the fair lending rules are the same, the simple fact that we have to report data on HELOCs for the first time will open doors that have remained unopened previously. The fair lending rule is the same today as it will be post-HMDA changes, as of Spring 2019, the regulators will have an incredible amount of increased ability to identify and then dig into these issues. There are several reasons for that, but most importantly here is the simple fact that we have to report data on HELOCs for the first time.Note that the steering described above would also be problematic under the TILA anti-steering rule in 12 CFR 1026.36.
Bonus! Takeaways from Richard Cordray's MBA speech. An interesting person to see speak in person. Walked onto the stage, read his speech, and walked off. No questions, no jokes, no fanfare. Came across as humble but hardened. Certainly looked exhausted.
Here are some things I picked up from listening to him:
CFPB will continue "good faith efforts" enforcement with TRID
Most lenders appear to have had favorable examination results with TRID
Companies have fared less well in the areas of servicing compliance and redlining.
Fair lending appears top-of-mind for CFPB with Director commenting that "communities of color" have been slower to rebound from industry collapse
While stressing fair-minded approach and empathy for regulatory change, also showed some spine with strong, direct comments such as to point out that (I'm paraphrasing here), "no industry whose irresponsible practices crippled the world economy could expect to escape without additional regulations in the aftermath."
CFPB believes that new regulations will benefit responsible lenders as much as it will benefit consumers
CFPB "respectfully disagrees" with PHH Ruling and stated that the decision is not final. Which very well may be true. From his comments, it does not appear they're modifying their practices with respect to RESPA interpretations.
Overall pretty interesting, I thought. Read the full transcript of his remarks here.
In Other News
Let's of news this week, including Wells Fargo employees guzzling hand sanitizer?
Of course we had the very sad, thought-provoking news that 51 year old David Stevens has cancer.
Hey speaking of HMDA, how are we ever going to comply with the new collection requirements? Well the first start is understanding the new 1003, found here on Fannie's website, including the dynamic portions of the form (meaning you can't simply print off one application on physical paper to learn) and especially the addendums
I know we've all been working with the CFPB's guidance on vendor management, Bulletin 2012-03, but watch out for a brand new CFPB update on this issue - should be publicly available today.
Was a pleasure for me to attend the MBA's national conference in Boston. One of the events that caught my attention was the presentation by twin astronaut brothers Mark and Scott Kelly. Read about them here. They spoke about compartmentalizing -focusing on those things that they can control and ignoring other distractions. Now, whether you're trying to connect a spaceship despite hanging onto the side of the ship at 17,500 miles per hour for the first time, or trying to run a successful mortgage banking shop while predicting economic trends and implementing regulatory reform, their point was to focus on those things you can control and be successful in those areas.
"When you look at this round ball, and everybody's down there, it doesn't seem all that big. You get a really good appreciation for the fact that this planet is an island, floating in the blackness of space. We really don't want to mess it up." ~ Mark Kelly
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