Preparing for the 2018 Home Mortgage Disclosure Act HMDA Changes
Consumer Affairs Update - December 2017
Published December 20, 2017 | December 2017 issue
Next year will bring significant changes for HMDA reporters. Effectively implementing such significant regulatory changes requires a focus on how the changes will affect your institution and a solid implementation plan. This article provides suggestions to help your institution implement HMDA changes effectively. Hopefully, many of you are well along in your efforts to prepare for these changes and will find this article a helpful check on the work you’ve completed.
How will the HMDA changes affect your institution?
Some of the key changes involve the types of applications covered by HMDA and the data reported for these applications.1
Identifying HMDA-reportable applications
A first step in preparing for the changes is identifying which applications need to be reported for HMDA, since these rules will change. For data collected on or after January 1, 2018, Regulation C generally applies to the following types of applications:
- Consumer-purpose, closed-end loans secured by a dwelling.
- Consumer-purpose, open-end loans secured by a dwelling.2
- Business-purpose, closed-end, and open-end loans secured by a dwelling that are home purchase, home improvement, or refinance loans.
Regulation C identifies a number of excluded transactions in section 1003.3 that bank staff should review in determining which applications to report. Institutions with agricultural loans should note that Regulation C now excludes loans with an agricultural purpose from HMDA reporting requirements. The applicable commentary to Regulation C describes an agricultural purpose as (1) funds used for an agricultural purpose, or (2) a loan or line of credit secured by a dwelling located on real property that is used primarily for agricultural purposes.3
The bank’s implementation plan should ensure that the bank determines which applications to report under the new rules as well as which applications it no longer needs to report, such as agricultural purpose loans that may have been reported under the previous rule. Part of this process should involve identifying which business lines originate the types of loans covered by the new rules and ensuring that the bank captures all of these covered applications as part of its updated HMDA reporting processes.
Collecting information for new data fields
Under the new HMDA rules, the number of data fields has increased. Some examples of new data to be reported include the borrower’s age, credit score, and debt-to-income ratio, and the loan’s term. In addition, some rules related to collecting applicant information have changed. Bank staff should familiarize themselves with these changes and determine the most effective and accurate methods for collecting these data.
How should your institution implement these changes?
The bank’s plan for implementing these HMDA changes should be comprehensive and will likely need to include updates to all aspects of the bank’s HMDA reporting processes.
Policies and procedures and tools
The bank will want to update any internal policies, procedures, and tools to reflect the HMDA changes. Questions to consider could include:
- What applications will need to be reported?
- What processes will need to change, and how should procedures be updated to reflect these process changes?
- Who has responsibilities for various parts of the HMDA data collection and reporting process?
Given the nature of these HMDA changes, training will be an important part of implementing the new rules. The bank should consider providing training to all staff affected by these changes. Staff with direct HMDA reporting responsibilities should receive the most in-depth training on the changes themselves and how the bank’s processes will change. Lenders and others involved in originating and processing HMDA-reportable transactions should receive training so that they understand their role in helping the bank capture needed applicant data and other information.
Internal controls and audit
Banks with effective HMDA-reporting processes frequently have multiple layers of internal controls to make certain they report accurate data. These controls will be particularly important going forward to ensure that the bank reports HMDA data accurately under the new rules. Effective controls for making sure the bank reports complete and accurate data for all HMDA-reportable applications may include:
- Centralized reporting functions.
- Electronic data collection.
- Second reviews of data, preferably by comparing reported data to source data, such as applications and loan documents.
Many banks will likely need to include system changes and third-party servicers in the scope of their implementation plans. In the end, a bank’s implementation plan should reflect the risks and complexities of its operations.
1 This article does not discuss all of the changes to HMDA, including new volume thresholds. It focuses instead on certain significant changes (most of which are stated in Regulation C, sections 1003.2 to 1003.4) to consider in implementing the new HMDA rules. For more information, refer to Regulation C, section 1003, and Consumer Financial Protection Bureau guidance for additional details on these changes.
2 Institutions will only need to report open-end lines of credit if loan thresholds are met. The threshold will be 500 covered lines of credit for the preceding two calendar years beginning on January 1, 2018, and will decrease to 100 lines for the preceding two calendar years as of January 1, 2020.
3 Commentary to Regulation C, section 1003.3(c)(9). Refer to commentary to Regulation Z, section 1026.3(a)-8, for guidance on what is considered an agricultural purpose.