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Corrected Disclosures Affecting HMDA LAR and Federal Reserve Comments on Finance Charge


Special two-part series this week! First a quick note on HMDA and corrected disclosures. Second, some takeaways from a recent Federal Reserve publication on finance charges.

 

PART 1: HMDA with TRID Changes

One consideration with the new HMDA rules will be going back and updating the LAR when corrected disclosures are provided. This is a bigger issue than years before for two reasons: (1) There is more data to report (and thus more chance to go back and fix), and (2) many fields are based on the TRID disclosures which require corrected disclosures frequently.

The following items must be reported "as disclosed" on the Closing Disclosure.

  • Rate spread (APR over APOR)*

  • Total loan costs

  • Total amount of borrower-paid origination charges

  • Discount points

  • Lender credits

  • Interest rate

So what happens when a Closing Disclosure is revised? What happens when it's revised post-closing?

General Rule

--> Report the data as disclosed on the most recent Closing Disclosure. This is true even where the CD is revised (often along with a refund) post-closing.

Exception

--> Do not update the LAR if the updated Closing Disclosure is provided in a different reporting period. So, for example, for annual HMDA reporters, if data is reported in 2019 and later changes with a revised CD in 2020, then the 2019 data is still used.

EXAMPLES:

  1. Mortgage closes without any lender credits in July 2018. A post-closing review identifies a tolerance error of $150 and, within the 60-day grace period, a revised Closing Disclosure is issued that shows a lender credit of $150 for the tolerance cure. The HMDA LAR should be updated to show a lender credit for $150.

  2. Prior to submitting the HMDA LAR, your compliance officer pulls a report of all Closing Disclosures issued post-closing. In several cases,the APR disclosed on the post-closing Closing Disclosure is different than appearing on the HMDA LAR. Because this is within the same reporting period, this field should be updated to match the most recent CD.

*APR is a recent addition to this list. The April 2017 HMDA rule proposed modest changes to the original HMDA rule. This rule is still proposed but likely to take effect. One change is to add APR to this list of items that are reported"as disclosed."

Part 2: Federal Reserve & Finance Charges

The Federal Reserve's always-helpful Compliance Outlook newsletter is out for the first quarter. Read it here. It has an interesting article on"Understanding Finance Charges for Closed-End Credit" that I was excited to read - hoping it was going to settle a few debates about what's included in the Finance Charge and what's not.

Let's break it down.

First of all, this is a GREAT article for anyone looking for an overall rundown of what's included in the APR generally. Of course, this is one of the few regulatory topics that has basically been the same for decades, so for anyone with less time or more experience, here are some takeaways:

1. Finance Charge Problems are Common​

The article confirms that federal regulators still "frequently cite" institutions for finance charge disclosure violations.

2. 3rd Party Charge Confusion

The article states "A creditor may mistakenly believe that if it does not retain a charge collected on behalf of a third party, it is not a finance charge." This isn't anything new - but it is something we see happen frequently, so I think it's good to clarify. The fact that they addressed this means the federal regulators are seeing it too. But despite rumors that appear to be spreading - there's no magic rule that says 3rd party fees are excluded from the APR. Some third party fees are excluded, but many others are not.

  • Note: I'm pretty sure that this confusion comes from a mixup with the QM test for Points & Fees. Under the Points & Fees test, bonafide third party fees are actually excluded. But your team needs to know this doesn't have anything to do with the Finance Charge definition -that remains the same as its always been.

3. Otherwise - Disappointing

While this article is a great summary from the Fed, unfortunately I think it's a bit of a disappointment because it avoids providing any fresh interpretations on ambiguous items -- it doesn't for example, attack the issue of whether lump sum attorney fees will be included in the APR or not (it only recites the regulatory language that we already had, and that obviously isn't clear enough).

 

In Other News

  • If you read the Compliance Outlook newsletter, you'll see Elder Financial Abuse is emerging as a hot topic. Well if you're looking to learn more, here is a CFPB report on this topic, which might be as a much as a $36 billion a year topic.

  • "While on a road trip, a big bug splattered all over the windshield. Dad said, 'he won't have the guts to do that again." Tweet to Jimmy Fallon

  • SOFI bid to get licensed - FinTech ... when will Apple and Amazon?

  • Know any community housing or other non-profit financial institutions working in Massachusetts? Make sure they've seen this announcement from the Division of Banks regarding their licensing requirements.

  • How/will you be changing your processes to adjust to the credit score changes? Namely, that credit reporting agencies will stop including information on tax liens and civil judgments (still getting same bankruptcy and foreclosure information). Some additional info. here:

  • ​This information will still be available as an add-on service (at an extra cost).

  • Fannie Mae reports that "lenders are not required to use sources to identify potential civil judgments and tax liens other than the loan application, credit report, and preliminary title report."

  • But ... Fannie is "not changing existing policy that requires delinquent credit, including judgments and liens, to be paid off at or prior to closing" and they still "will rely on life of loans reps. and warrants as the resolution if there is a clear title and first lien enforceability issue identified" ... Groan ...

 

On My Mind ...

Cool story out of college football, have you heard of Damion Jackson? He's earned a spot on the roster of the highly competitive Nebraska team despite never having played football before. Of course, everyone told him he didn't have a chance. But everyone also told him he didn't have a chance at becoming a Navy SEAL either. Maybe it was because he didn't know how to swim or use a firearm when he joined the Navy at 18 years old. One year later he was added to the SEAL team, the youngest member of his entire class. When he was originally accepted into SEAL training, everyone asked:"Did he grow up shooting? ... Was he on the swim team?" Nope.

His secret? "I'm the kind of guy that gets a wild idea and then I kind of go for it ... I put 100 percent of my energy into it."

"I would say I have an usual level of excitement for the unexpected. I'm very intellectually stimulated by the hard things and managing in uncertainty. I'm calm and happy in that state, instead of being unsettled. I have a real belief that the only way to succeed today is understanding that uncertainty IS the job - it's not about the light at the end of the tunnel."

-Katie Beauchamp (CEO of Birchbox, on what everyday thing she does better than anyone else)

 

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.**

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