Fair Lending Impacts
Do not underestimate the impact so much additional data will
have on fair lending analyses and analytics. This is not just a
concern about what your regulators can do with your data; the
opportunity to parse so much more information to identify possible
disparities and hot spots is eagerly anticipated by the press and
public interest groups alike. Take this time to understand what
your data says about your bank’s fair lending profile; before you
know it, the information will be available for public consumption.
Keep in mind another important change to HMDA, one that
is not data-related: your bank’s 2018 and future LARs will (as
your 2017 LAR is now) be available for download directly from
the CFPB’s web site. No longer must an interested member of the
public (press, community group, or otherwise) request your LAR
from your bank directly. It’s just an easy download, in analysis-ready format, from the CFPB. This means you will no longer even
know who has your information, as you did before, and it makes
it so much easier for your information to be used in comparison
exercises by anyone with an internet connection and a spreadsheet.
The regulators have stated publicly that they will examine banks
under a “good faith effort to comply” standard when it comes to
the new rule, much as they did when TRID was new. But do you
feel comfortable with putting data into the public domain that
might not be as accurate as it could be? You might get through a
HMDA data integrity exam without criticism but the fair lending
impact could be a different story. How do you think responding
to an inquiry about your bank’s mortgage lending patterns by
saying the data is wrong, will be received?
Some take the position that it won’t matter since the CFPB will
soon finalize a rule to keep certain of the new data fields from the
public. In its proposal, the CFPB included the applicant’s credit
score, DTI, the property value, address, and AUS findings, among
others, in its listing of data to exclude from public disclosure. But
this still leaves a large number of new data fields that will be made
public, along with all-new data on open-ended lines of credit to
peruse. And don’t forget that the regulators will have the full range
of information at their disposal.
One thing to keep in mind is that with the dramatic change in
reporting (both types of loans as well as data), it will be difficult to
compare 2018 performance with 2017. It’s an apples-to-oranges
exercise; trend analyses will be hindered by the changes unless
banks go through the exercise of extracting the data from 2018
LARs that were also reported in previous years.
What environmental trends can we expect to see with the new
data? Here are a couple thoughts:
1. On average, HELOC populations tend to be wealthier and more
non-Hispanic White than closed-end loan groups. Although
this is a nationwide phenomenon, it would be worthwhile to
determine whether this is true at your bank;
2. The rise in mortgage rates and resulting end of the refinancing
wave has the potential to impact the makeup of banks’ product
mixes, since refis will likely make up a smaller percentage of
loans (by purpose) than in previous years. This also may have
an impact on race or ethnicity breakdowns or across income
brackets. This is a market factor that may impact your bank’s
fair lending profile rather than one made by choice. Be aware
of whether and how much it impacts your bank.
The elimination from HMDA reporting of unsecured home
improvement loans will likely have a greater impact on low- to
moderate-income (LMI) areas than on middle- or high-income
areas. This is not a factor brought about by market changes but
rather one due to changes to the regulation; nonetheless it may
impact your bank’s aggregate statistics year over year.
Be aware of further regulatory changes.
There won’t be any more changes since Congress and the CFPB
have already spoken, you say. Except for the impending finalization of the public disclosure of data provision, this is true as far as
changes to the regulation go (for now; the CFPB has said it will
re-examine the new HMDA rule sometime in 2019). But keep in
mind that the CFPB mandates how and what reporters submit
through its Filing Instructions Guide. Although not part of the
regulation per se, changes the FIG (as it’s affectionately known)
are effectively changes to the rule itself. Be sure to monitor the
FIG—it’s been updated four times in 2018 alone.
The 2018 HMDA rule present banks with a unique challenge,
one that impacts compliance, operations, IT, investors, and anyone
else involved in the mortgage loan environment. The changes
promise to be far-reaching even after submission day is past. Taking the time now to put forth your best effort, including catching
all the landmines, promises a greater return later. ■
ABOUT THE AUTHOR
CARL G. PRY, CRCM, CRP is managing director for Treliant LLC.,
in Washington, D.C., where he advises clients on a wide variety of
compliance, fair lending, corporate treasury, and risk management
issues. Over the last two decades, Carl has held senior leadership
positions including senior vice president and compliance manager for the Compliance and Control Department at Key Bank in
Cleveland, Ohio; vice president of regulatory services at Kirchman
Corp. in Orlando, Florida; and manager in the Finance and
Performance Management Service Line at Accenture in Chicago,
Illinois. He also serves on the ABA Bank Compliance Editorial
Advisory Board. Reach him via email at firstname.lastname@example.org or by
telephone at (440) 320-4662.
1 The CFPB has been in a slow process of rebranding itself, and ABA will
begin using “Bureau of Consumer Financial Protection” and “BCFP” when
either ( 1) the Associated Press stylebook changes, or ( 2) the bureau updates
its website to reflect the different name. As of this edition’s printing, the
bureau’s website says “Consumer Financial Protection Bureau” and “CFPB.”
ABA made this decision in April 2018 to minimize confusion for readers
who may be more familiar with the CFPB name.
Do not underestimate the impact
so much additional data will have on
fair lending analyses and analytics.