Do you understand the January 1, 2018 HMDA deadline?
As Dodd-Frank veterans across the country start gearing up to implement new HMDA requirements, understanding the various deadlines - most importantly January 1st 2018 - is one of the first hurdles.
The HMDA Rule, which is finalized, will have a staggered rollout, with various parts kicking in on January 1st in 2017, 2018, 2019, and 2020. The most important deadline, in my opinion, is January 1, 2018 for most lenders. This is the date that new reporting requirements take effect.
Remember the new HMDA will require lenders to report a much greater number of data fields (for a new total of 48), including more sophisticated information on race and ethnicity.
General Rule
Follow all the existing HMDA collecting rules on applications received in 2017 where final action is taken in 2017. (New rules have no effect - whew!) But where final action is taken in 2018 (even on an application received in 2017), the new rules apply. That means you'll need to report the new data fields on a 2017 application where final action is taken in 2018.
For example, one new data field is Debt-to-Income ratio. If you take final action in 2017, you do not need to report this for HMDA purposes. But if you take an application in 2017 but final action is taken in 2018, you will need to report Debt-to-Income ratio on the LAR.
Special Rule for GMI
A special rule applies regarding new data fields on race and ethnicity (which we refer to as "GMI"), which gives lenders flexibility in complying with the 2018 deadline:
Where final action is taken in 2017 on a 2017 application, the lender must report the old GMI but may voluntarily collect the new GMI. Where final action is taken in 2018 on a 2017 application, the lender may choose whether to collect and report the old GMI or to collect and report the new GMI .
This flexibility is good. Unlike other data fields (Debt-to-Income ratio, for example), GMI is harder to collect retroactively - we would probably have needed to re-interview the borrower. This was also written in to protect lenders from violating ECOA rules, which generally prohibit asking for information like this except where HMDA requires, where lenders want to get a jump start on new HMDA procedures. In other words, it was meant to ease the compliance burden by allowing lenders to start adapting to new forms and processes early, at their own pace.
Jump Start or No?
So an interesting question that arises is this: Will your institution be collecting the new data fields in 2017 (but only reporting as necessary), knowing that in most cases this will not actually be required? Or will you wait until you are actually required to do so?
So one frustration with TRID was our inability to practice beforehand and test loans. While it rarely makes sense to voluntarily comply with more regulations than we're already subject to, this does present a unique opportunity to get it right before the stakes are high.
In Other News
In tune with today's topic, find the new 1003 forms here, and the CFPB small entity guide for HMDA here
So India's PM pushing the corruption-ridden country towards a cashless society? (Story here) Why is this significant? With 90% of transactions conducted in cash now, the government is losing a battle against bribery, counterfeiting, a major black market economy, and tax-evaders (all seemingly insurmountably ingrained in their culture now).
Why do we value harms and benefits differently? Why should I change this newsletter's structure because one person complains (but three people - all close relatives) find it helpful? Why should Steve stop making fun of my haircut when everyone else at the office finds it funny? Why does one person's suffering (harm) outweigh everyone else's enjoyment? I'm kidding mostly, my haircut is pretty great, but I sincerely believe this is a legitimate human bias that can disadvantage strategic business thinkers.
A short HBR article "How Loss Aversion and Conformity Threaten Organizational Change" calls this as "negativity bias," explaining that "Simply put, our fear of losing is greater than our thrill of winning. We notice and react to angry faces in a crowd more readily than we do happy faces. When offered a bet with equal probability to win or to lose, the average person requires a gain twice the value of the potential loss before the bet is accepted." The article uses this example/explanation:
Picture a management team, composed of highly accomplished individuals with long tenures at the company, gathering at the annual planning meeting. The CEO has been in place for five years, business performance has been strong and Wall Street has rewarded shareholders handsomely. Yet the CEO has a nagging perception that forces gathering in the marketplace threaten the company's long-term outlook. Choices made now will determine the ability of the organization to respond in the future. What is his team likely to do?
This tendency to prefer avoiding losses over achieving equivalent gains drives powerful risk-averse behaviors that can hold us in place like gravity, leading us to prefer the status quo even when change is very much in our best interest.
At an organizational level, this tendency increases exponentially. The compounding effect of risk-averse behaviors across thousands of individuals - each preferring known working patterns over the perceived risk introduced by change - generates overwhelming organizational inertia. The end result: we don't change, and the organization suffers.
"If something isn't black and white, I say, 'Why the hell not'?"
- John Wayne
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**These are our opinions. We're not authorized, or willing, to express those of others.**