■ ■ ■ Age;
■ ■ ■ Debt-to-Income (DTI) ratio;
■ ■ ■ Property value;
■ ■ ■ Total units in the dwelling securing the loan; and
■ ■ ■ Multifamily affordable units.
These data are disclosed as ranges or midpoints within a range. But remember that while
these data points are shielded from public disclosure, they are not hidden from your regulator. Any and all data submitted can be the focal
point of a fair lending exam.
We’re a Small Bank—
What Should We Do?
The Economic Growth, Regulatory, and Consumer Protection Act, signed into law in May of
2018, granted an exemption for smaller banks
who originate fewer than 500 HMDA-reportable
closed-end loans or 500 reportable open-end
lines of credit in each of the last two calendar
years. An exemption from what exactly? A common misconception is that the exemption allows
the bank (nonbanks are not eligible) to cease
reporting under HMDA entirely. That is not
the case—the exemption provides only that the
bank need not report the new elements required
beginning in 2018. It essentially rolls back the
amount of data to be submitted for these banks,
to the state it was in, in 2017 and prior.
Many banks in this situation had already gone
to the trouble to identify and collect the new
2018 data elements up through May of 2018,
even though they were not ultimately reported
with the bank’s 2018 LAR. What to do now with
that data and the newly-developed processes?
There are two principal questions here:
1. What should be done with the extra data
that was collected but not submitted? If the
bank is confident in the integrity of the information, it can be extremely useful for fair
lending analytics purposes. Any additional
information that adds appropriate detail
and context to mortgage loans and lines is
helpful when looking for and investigating
disparities and justifications for what the data
shows. Which leads to the second question:
2. Should we continue to collect the additional
data even though we’re not submitting it with
our LAR? The answer to this question will
differ by bank, but similar to the question
above, additional information is always use-
ful in analytics. The new exemption certainly
doesn’t prohibit the bank from continuing to
collect the data, so if it’s all the same, why not
continue to collect it? The work has already
been done, after all. Make the fair lending
process more comprehensive and robust by
making good use of that work.
What Should We Do Now
that the Data is Public?
Regardless of your bank’s asset size, HMDA-LAR size, business model, or risk profile, be
prepared to tell your own story. Make sure you
understand what your data says about your
bank, both good and bad. Spend extra time this
year analyzing your HMDA data, utilizing the
new data points as well as the new types of applications being reported (i.e. dwelling-secured
lines of credit and closed-end home equity
loans) to predict where your hot spots are. Better to identify and deal with them now rather
than be on the defensive later.
Remember that due to all the changes in
HMDA in 2018, year-over-year analyses will
essentially need to be restarted. Trending will
be extremely difficult so it’s a fresh slate for the
most part. Try to anticipate where the press or
community groups may focus: is it your HE-LOC portfolio since those are being reported for
the first time? Is it your closed-end home equity
loans that may show some unexpected disparities based on factors not previously publicized?
Remember that environmental factors will also impact your results. For example, rates began
to slowly rise in 2018 and the refinance boom
we’ve seen for several years essentially came to
an end. This will have an impact on the product
mix on your HMDA-LAR. As well, on a macroeconomic level, HELOCs tend to have different
demographic characteristics than do closed-end
loans. Does your HMDA-LAR, when viewed
from a bank-wide perspective, look drastically
different than it did in 2017 due to the addition
of HELOCs? If so, do you know why? Do you
even know at all? If the answer here is no, getting started on even some basic analytics should
be near the top of your to-do list.
What About Further
HMDA Reform in 2019?
On May 2, 2019, the CFPB issued a Notice of
Proposed Rulemaking (NPRM), in which it
proposed even further changes to the coverage
thresholds for collecting and submitting data.
The proposal would permanently increase the
threshold for reporting from 25 to either 50
or 100 closed-end loans, and would extend
the current temporary threshold for open-end
lines of credit of 500 for another two years, and
would then reduce it to 200 permanently. Some
version of threshold changes seems likely, so
if you’re not a small bank today, you may be
in the future. However, the opposite may also
be true—you may not have to report lines of
credit this year but you may in future years.
How should you plan for this? These discus-
sions should take place now (or at least upon
finalization of the rule) so you’re ready to react
appropriately when the time comes.
On the same day, the CFPB issued an Advance
Notice of Proposed Rulemaking (ANPR) seeking comment on the costs and benefits of the
new data elements required for 2018. They also
asked about reporting certain commercial loans
made to entities secured by multifamily dwellings. You may think after a quick read of this, that
the CFPB is thinking about returning HMDA to
where it was before the 2018 changes. This is not
true; keep in the mind the CFPB can only change
those data elements it added for 2018 due to the
discretionary authority Congress provided to it
in the Dodd-Frank Act. Congress gave the CFPB
the ability to add data elements as it saw fit in
addition to those mandated in Dodd-Frank. As
a result, there are only 12 data elements that the
CFPB can change. But keep an eye on the news,
as any change or reduction in the burden of reporting would be welcome news for banks.
Do Your Homework and
Stay Vigilant
In the end you should do what you (hopefully)
always do: analyze your HMDA data and be
ready for any inquiries. But due to the vast
amount of new data, public attention to HMDA
is at a high point. Always be ready to tell your
bank’s own story. ■
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 cpry@
treliant.com or by telephone at (440) 320-4662.
