You re Only as Good as Your Data HMDA & CRA: Patti Blenden, CRCM May Mission Possible * Blenden 1

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1 HMDA & CRA: You re Only as Good as Your Data HMDA & CRA: You re Only as Good as Your Data Patti Blenden, CRCM May Mission Possible * Blenden 1

2 Renewed Emphasis on Fair Lending Fair Lending Laws ECOA & FHA HMDA UDAAP CRA Illegal Credit Practices UDAP SCRA 3 Fair Housing Act Enacted as part of Civil Rights Act of 1968 with broad social purposes and specific coverage for financial institutions Very broad coverage of housing related transactions Coverage includes the sale, rental, origination, or purchase of loans with a purpose of constructing, purchasing, improving, repairing or maintaining a dwelling secured by residential real estate Selling, brokering, or appraising of residential real property Mission Possible * Blenden 2

3 Equal Credit Opportunity Act (ECOA) General Purpose 12 CFR 1002 Promote equal availability to credit by all creditworthy applicants and prohibits discrimination in any aspect of a consumer or business credit transaction Applies to each and every type of credit product offered by an institution, all borrowers! Consumer and commercial!!! Applies to "any aspect of a credit transaction" which includes all dealings, without exception, between an applicant and a creditor Focuses on informing the applicant of potential for discrimination and providing him or her sufficient information to determine if they have been fairly treated 5 Prohibited Bases familial status handicap race color religion sex national origin marital status age public assistance income rights exercised under CCPA Fair Housing Act ECOA Mission Possible * Blenden 3

4 Protected Parties Lender may not discriminate on a prohibited basis because of the characteristics of: An applicant, prospective applicant, or borrower A person associated with an applicant, prospective applicant, or borrower (for example, a co applicant, spouse, business partner, or live in aide, etc.) The present or prospective occupants of either the property to be financed or the neighborhood or other area where property to be financed is located 7 Rights Exercised Under CCPA Consumer Credit Protection Acts (CCPA) include: Credit Card Act of 2009 Credit Repair Organizations Act of 1996 Equal Credit Opportunity Act of 1974 (ECOA) Fair Credit and Charge Card Disclosure Act of 1988 Fair Credit Billing Act of 1974 (FCBA) Fair Credit Reporting Act of 1970 (FCRA) Fair Debt Collection Practices Act of 1977 (FDCPA) Truth in Lending Act of 1968 (TILA) Servicemember Civil Relief Act (SCRA) Mission Possible * Blenden 4

5 Community Reinvestment Act (CRA) 12 USC 2901 Examination Directive Assess the institution's record of helping to meet the credit needs of its entire community, including low and moderate income neighborhoods, consistent with the safe and sound operation of such institution. Regulator s Enforcement Authority through Applications Take CRA record into account in its evaluation of certain corporate applications by such institution. 9 Home Mortgage Disclosure Act (HMDA) The Home Mortgage Disclosure Act was enacted in 1975 and was implemented by the Federal Reserve Board's Regulation C. Congress found that depository institutions have sometimes contributed to the decline of certain geographic areas by their failure pursuant to their chartering responsibilities to provide adequate home financing to qualified applicants on reasonable terms and conditions. On July 21, 2011, the rule writing authority of Reg C was transferred to the CFPB. This regulation provides public loan data that can be used to assist: In determining whether financial institutions are serving the housing needs of their communities; Public officials in distributing public sector investments so as to attract private investment to areas where it is needed; And in identifying possible discriminatory lending patterns Mission Possible * Blenden 5

6 Carefully Identify Your Reportable Loans! Look below the surface! Mission Possible * Blenden 6

7 CRA Data Reporters Large Banks Currently > $1.221 Billion* for 2 consecutive year ends and is not a special purpose institution *Indexed annually State chartered member banks FRB Nonmember state chartered banks FDIC National Banks OCC 13 CRA Data Reported Must Report in Electronic Format Annually by March 1 for prior calendar year If also HMDA Reporter, report the location of HMDA loans outside MSA Transmittal Sheet & Definition of Assessment Area(s) Aggregate Reporting of Small Business & Small Farm Loans Community Development Loan Data Mission Possible * Blenden 7

8 CRA Data Collection The CRA is intended to encourage federally insured commercial banks and savings associations and savings banks to help meet the credit needs of the local communities in which they are chartered. The regulations that implement the CRA require commercial banks and savings associations with total assets of approximately $1 billion or more to collect and report data regarding their small business and small farm lending and community development lending. The small business and small farm lending data reported under the CRA provide useful information about such lending, but are less comprehensive than the data reported on home mortgage lending under the Home Mortgage Disclosure Act (HMDA). 15 FRB Outlook Live * Tips for Reporting Accurate HMDA and CRA Data * Mission Possible * Blenden 8

9 CRA Data Include information on small business and small farm loans originated or purchased, but NOT on applications denied; Indicate whether a reported loan is extended to a borrower with annual revenues of $1 million or less The data do not include demographic information about the applicant; Loans are aggregated into three categories based on loan size and reported at the census tract level, rather than loan by loan. It is the original amount of a loan, not the annual revenue of a business or farm, that determines the classification of a loan as a small business or small farm loan. The section of the Call Report relating to small business and small farm loans is included in this guide as Appendix E. 17 Small Business Loans Small Business Loans are loans of $1 million or less originated, or maturity extended by renewal or refinance or modification, or new money added in the applicable time period from the following Call Report line items on Schedule RC C1: Loans and Leases: Line 1.e(1) Loans secured by owner occupied nonfarm nonresidential properties Line 1.e(2) Loans secured by other nonfarm nonresidential properties Line 4.a Commercial and industrial loans to US addresses Mission Possible * Blenden 9

10 Small Farm Loans Small Farm Loans are loans of $500 thousand or less (same caveats on extended/renewed/refinanced) from the following Call Report line items on Schedule RC C2: Loans and Leases: Line 1.b Secured by Farmland Line 3 Loans to finance agricultural production and other loans to farmers Loans are reported if they meet these criteria regardless of annual revenue. The revenue is reported using: Code 1 (revenue of $1 million or less) or Code 2 (greater than $1 million). 19 Small Business Loans Secured by Nonfarm Residential Real Estate Loans secured by nonfarm residential real estate used to finance small business must be reported as loans secured by real estate when the real estate collateral taken is greater than 50% of the principal amount of the loan at origination. In cases where the security interest in the nonfarm residential real estate is taken as an abundance of caution and where the loan terms as a consequence have not been made more favorable than they would have been in the absence of the lien or liens. See instructions for Call Report Schedule RC C in Appendix E. If the estimated value of the real estate collateral is 50% or less of the loan amount, the loan should be reported in another category based on the purpose of the loan (such as Commercial and Industrial). If the loans promote community development, they may be considered as community development loans. Otherwise, the institution may opt to collect and maintain data separately as Other Secured Lines/Loans for Purposes of Small Business for examiner evaluation Mission Possible * Blenden 10

11 Small Business/Small Farm Loan Aggregate Reporting An institution subject to data reporting requirements must report the aggregate number and amount of loans for each geography in which it originated or purchased a small business or small farm loan. Loans to businesses and farms are reported by origination amounts of: $100,000 or less; More than $100,000 but less than or equal to $250,000; and More than $250,000. Institutions must also report loans to businesses and farms with gross annual revenues of $1 million or less, using the revenues that the institution considered in making its credit decisions. 21 CRA Data Reporting Lines of Credit Institutions must collect and report data on lines of credit in the same way that they provide data on loan originations. Lines of credit are considered originated at the time the line is approved or increased; and an increase is considered a new origination. Full amount of the credit line is the amount that is considered originated. In the case of an increase to an existing line, the amount of the increase is the amount that is considered originated and that amount should be reported. Consistent with Call Report instructions, if an increase to an existing line would cause the total line of credit to exceed $1 million, in the case of a small business line, or $500,000, in the case of a small farm line, the institution would not report the increase Mission Possible * Blenden 11

12 Geographic Distribution of Small Business and Small Farm Lending The availability of information about the geographic location of businesses and farms receiving credit provides an opportunity to examine the distribution of farm lending across areas grouped by sociodemographic and economic characteristics. Information on the distribution of businesses and population provides some context within which to view these distributions. CRA performance assessments include an analysis of the distribution of small business and small farm loans (of all types) across census tracts grouped into 4 income categories: low, moderate, middle, and upperincome. 23 FRB Outlook Live * Tips for Reporting Accurate HMDA and CRA Data * Mission Possible * Blenden 12

13 FRB Outlook Live * Tips for Reporting Accurate HMDA and CRA Data * Rules for Reporting Refinances May report only one origination (whether a refinance or renewal) per loan per year, unless an increase in the loan amount is granted If the loan amount increases when extending the term of the loan, always report the amount of the increase as a small business or farm loan Report only the amount of the increase if the original or remaining amount has already been reported Mission Possible * Blenden 13

14 Reporting Gross Annual Revenues or Income: When to Aggregate Revenues FRB Outlook Live * Tips for Reporting Accurate HMDA and CRA Data * Interpretation of CRA Data Interpreting the CRA data can be challenging. Lending institutions report the geographic location of the loan. If the proceeds of a small business loan are used in more than one location, the institution can record the loan location as either the address of the borrower s business headquarters or the location where the greatest portion of the proceeds are applied, as indicated by the borrower. However, these locations may have different socio demographic and economic characteristics. Although CRA data provide information on extensions of credit in a geographic area, they do not indicate the amount or nature of the overall demand for credit in that area. Consequently, caution should be used in drawing conclusions from analyses using only CRA data, as differences in loan volume across areas may reflect differences in local demand for credit. Also, the CRA small business and small farm lending data reported each year cover only a portion of the credit extended to small businesses and small farms Mission Possible * Blenden 14

15 HMDA s Goals Provide public with information on whether the financial institutions are meeting community housing needs Aid public officials and private investors in identifying areas needing investment Identity possible discriminatory lending patterns and assist regulatory agencies in enforcing anti discrimination statutes 29 HMDA Reporting Challenges Difficult to identify all reportable transactions Multiple business lines affected (Residential real estate, consumer, commercial real estate) Public availability of data increases reputation risk Data errors may result in the appearance of discriminatory lending Necessary for accurate and meaningful internal fair lending and CRA reviews Must meet HMDA purpose and other definitions Dwelling: Includes mobile homes (whether or not attached to real property), condo units, and co ops Covered preapproval program: Comprehensive underwriting, written commitment, valid for designated period of time, up to specified amount, home purchase, subject to limited conditions Report on applications that were not originated (Denied, withdrawn, incomplete, approved but not accepted) November 2010, Compliance Outlook Webinar, HMDA & CRA Reporting Mission Possible * Blenden 15

16 HMDA Data HMDA data covers home purchase, home improvement loans and refinancings including the following data elements: Applications type and amount of applications and in some circumstances, pricing Disposition of application was the application denied or approved? Property is it single family or multi family and where is it located? Is it manufactured housing? Applicant ethnicity, race, sex and income 31 HMDA Reporters Financial institution that exceeds the annually adjusted asset threshold* AND * Has an office in an MSA on the preceding December 31 st AND For profit mortgage lender that originated dwelling purchase and refi loans of either >10% of loan volume or > $25 M Had an office in an MSA on the preceding December 31; AND Meets certain federal criteria such as being FDIC insured Had total assets > $10M on the preceding December 31 OR originated at least 100 home purchase and refi loans the previous year. * Asset Threshold of $43M at 12/2013 Asset Threshold of $44M at 12/ Mission Possible * Blenden 16

17 HMDA What is Reported? All applications for, originations and purchases of: Home Purchase Loans Loan purpose to purchase a dwelling, must be secured by the dwelling Preapprovals reported if the bank has a formalized covered program Home Improvement Loans (closed end) Dwelling secured: repair, rehab, remodel or improve a dwelling or its real property Non dwelling secured: same purpose and classified by bank as home improvement Refinance Loans New note that satisfies and replaces existing obligation by same borrower Both old and new loan secured by a dwelling; not purpose driven! Home Equity Lines of Credit (Optional) Open end credit plan secured y a dwelling Purpose driven: home purchase or home improvement, report amounts for those purposes 33 Report ALL Dwellings! Dwelling means a residential structure (with or without dirt) located in US, DC, or Puerto Rico Does not consider: The number of acres Number of units (duplex, quad plex, etc.) Occupancy (primary, secondary or rental) Entity or individual Lien status Excludes: Recreational vehicles such as boats or campers (UNLESS you can definitively prove residence controversial definition) Transitory residences such as hotels, hospitals, dormitories, etc. Includes individual condo or cooperative unit Report 1 4 family dwellings, apartment complexes, even multi purpose properties with primarily (more than 50% of the value) a residential purpose Apartment complex with grocery store Farm with a dwelling Mission Possible * Blenden 17

18 HMDA Exemptions Loans acquired through acquisition Loans on unimproved land Fiduciary loans Construction and temporary financing loans Purchase of servicing rights Prequalification requests Purchase of interest in mortgage pool 35 Applications An oral or written request for a home purchase or home improvement loan made in accordance with the bank s procedures Remember Reg B requires written applications for purchase or refinance of primary dwelling If making a 1st mortgage loan to borrower and a 2nd mortgage loan to same purchaser to finance part or all of down payment, report each loan separately as a home purchase loan Commentary Mission Possible * Blenden 18

19 HUD s RESPA Application Minimum 6 1. Borrower s name 2. Borrower s monthly income 3. Borrower s Social Security Number to obtain a credit report 4. Property address 5. Estimate of the property value 6. Mortgage loan amount sought "Any other information deemed necessary by the loan originator 7 th bucket (goes away 8/1/2015) 37 Report ALL Dwellings! Dwelling means a residential structure (with or without dirt) located in US, DC, or Puerto Rico. Includes individual condo or cooperative unit. Definition does not consider: The number of acres Number of units (duplex, quad plex, etc.) Occupancy (primary, secondary or rental) Entity or individual Lien status Report 1 4 family dwellings, apartment complexes, even multi purpose properties with primarily (more than 50% of the value) a residential purpose Apartment complex with grocery store Farm with a dwelling Excludes: Recreational vehicles such as boats or campers Transitory residences such as hotels, hospitals, dormitories, etc Mission Possible * Blenden 19

20 Home Purchase Loans Made for the purpose of purchasing a dwelling Must be secured by the dwelling being purchased or another dwelling Report the address of the mortgaged property Assumptions Reported upon accepting the new borrower in writing Report outstanding principal as loan origination amount Report denials when declining new applicant 39 Home Improvement Loans Dwelling Secured Any of the proceeds used to repair, rehabilitate or remodel a dwelling Improvements to dwelling or to the real property are included Driveway, retaining wall, etc. Not Dwelling Secured Proceeds used to repair, rehabilitate, remodel, or improve a dwelling Must be classified as home improvement loan Improvements to dwelling or to the real property Driveway, retaining wall, etc. Improvements to an apartment complex Mission Possible * Blenden 20

21 Refinancing Definition A new obligation that satisfies and replaces an existing obligation by the same borrower in which both the existing AND new obligations are secured by liens on dwellings Report even if you were the original creditor and no new money was advanced Purpose is not a criteria for reporting refinances as of 1/1/04 per HMDA Guide and glossary. 41 Home Equity Lines of Credit Open end credit plan secured by a dwelling where creditor reasonably contemplates repeated transactions Reporting is currently OPTIONAL Determine purpose at time of application Reportable if portion of line is for home improvement or home purchase Report amount for home improvement or home purchase Report denied and approved applications Report only once in the year of origination Mission Possible * Blenden 21

22 HMDA Purpose Hierarchy Multi Purpose: Report home purchase if also refinance or home improvement; report home improvement if also refinance Purchase Home Improvement Refinance 43 2 Types of Pricing Data Calculated HMDA rate spread as a Higher Priced Mortgage Loan (HPML) Much lower threshold than HOEPA loans HMDA s HPML pricing (rate spread) thresholds were aimed at including the vast majority of subprime rate mortgage loans Flag indicator that the loan exceeds the price triggers of the HOEPA Congress aimed HOEPA s protections and disclosures to address the highest priced loans in the subprime market Mission Possible * Blenden 22

23 Rate Spread Coverage Reporting requirement applies to consumer purpose (TILA covered) originations of Home purchase loans Dwelling secured home improvement loans Refinancings Does not apply to these loans Denied Loans Purchased Loans Unsecured Home Improvement Loans Loans not subject to Reg Z (TILA) (such as business purpose loans for investment property or loans with an entity borrower) Mission Possible * Blenden 23

24 HMDA GMI Required? Is application from a natural person? (individual, not an entity) If YES, is the application for credit reportable under HMDA (i.e., a home purchase, home improvement loan or a refinance loan)? If NO do NOT collect GMI! If YES, collect GMI! If NO, is this an open end line of credit (your bank elected not to report for HMDA ) for the purchase of the individual s primary residence? If YES, collect GMI! 47 Collecting Government Monitoring Info (GMI) Field ECOA Reg B HMDA Reg C Who uses this rule? Institutions that are NOT HMDA reporters Institutions that ARE HMDA reporters GMI Covered Transactions Purchase Transaction Requirements Refinance Transaction Requirements CONSUMER PURPOSE ONLY! Applies to applications for credit primarily for the purchase or refinance of a dwelling to be occupied as a principal residence. The principal residence purchase loan must be secured by the principal residence. The principal residence refinanced loan must be secured by the principal residence. CONSUMER OR COMMERCIAL PURPOSE! Broader in coverage than Reg B. GMI required for most closed end purchase or refinance mortgage loans, home improvement loans, and optional for HELOCs. The purchase loan may be secured by any dwelling. The old loan and new refinance transaction must be secured by any dwelling, not necessarily the same dwelling or dwelling being purchased. Ethnicity X X Race X X Sex X X Marital Status X Age X Mission Possible * Blenden 24

25 Types of Loans Subject to GMI Collection Loans subject to GMI ECOA Reg B Purchase and refinance loans secured by a dwelling that is, or will be, applicant s principal residence. HMDA Reg C Purchase and refinance loans secured by a dwelling. HELOC reporting is optional. Home purchase loan Not defined in Regulation B. A loan secured by and made for the purpose of purchasing a dwelling. Dwelling Residential 1 4 family structure, with or without real estate. A residential structure, with or without real estate of any # of units. Home improvement loan Not applicable; GMI not required. Secured by dwelling lien for purpose (whole or part) of repairing, rehabilitating, remodeling or improving dwelling or the real property. Non dwelling secured must be classified as a home improvement loan. Home equity line of credit (HELOC) Refinancing Not applicable; GMI not required. Existing note satisfied and replaced by new note by same borrower. If at same creditor, may request GMI but not required. Open end credit plan secured by a dwelling as defined in Regulation Z. Both the existing obligation and the new obligation are secured by liens on dwellings. 49 GMI is to be collected during the application phase. Collection during any other phase (underwriting, verification, closing, etc.) is a violation! How are you going to be sure to collect GMI at application for HMDA reportable loans? Mission Possible * Blenden 25

26 Mission Possible * Blenden 26

27 Most Likely Rate Spread Loans Mobile Homes without land Higher risk pricing Non RE usually higher rates Short term equity loans with fees Generally have origination and closing fees Short term generally = higher APR Broker Loans Broker fees = higher APR Short term JUMBO loans with PMI Short term and large $$ = higher APR PMI increases APR 53 Reg C HMDA LAR Reporting Enter NA in the rate spread field if: The transaction is not subject to reg Z Not secured by a dwelling for home improvement transactions It is a purchased loan The application does not result in an origination The differences do not exceed the thresholds on covered transactions Mission Possible * Blenden 27

28 Rate Spread Measurement Date? Use the date on which the final interest rate is set for Reg Z originations secured by property Rate date more accurately reflects lender s pricing decision than the application date used in HOEPA Use the 15 th of the month prior to date final rate is set. Rate date of June 3 rd, use May 15 th Rate date of June 15 th, use June 15th Rate date of June 17 th, use June 15 th 55 Rate Spread Reminders Do not report rate spread for: Purchased loans HELOCs Assumptions Non dwelling secured home improvement loans Loans with an entity borrower Truncate rate spread to 2 decimal places on LAR Mission Possible * Blenden 28

29 Rate Spread Resources Financial Institution Letter (FIL) # , includes a link to the Federal Register that includes Attachment I (Methodology) Link to the FFIEC s new rate spread calculator Link to the FFIEC s APOR tables Link to the FFIEC s Treasury Yield tables 57 HOEPA Status Report whether the loan qualifies as a HOEPA loan 1 HOEPA loan Applies only to loans originated 2 Not HOEPA All non HOEPA originations or purchased loans All other loans where action taken is not originated Consumer closed end and open end loans secured by a person s principal dwelling Covers both first or subordinate lien loans Common HOEPA loans Purchase money mortgages Refinances Closed end home equity loans Open end credit plans (i.e., HELOCs) Mission Possible * Blenden 29

30 NOT Covered by HOEPA Residential mortgage transactions are NOT covered by HOEPA rules Reverse mortgages Construction only loans Loans originated and directly financed by a Housing Finance Agency (HFA), USDA s Rural Development Section 502 Direct Loan Program loans 59 UPDATE!!! Rate Spread vs. HOEPA Rate Spread: Rate lock date Report if spread equals or exceeds 3 or 5 percentage points Must use Board s table to find comparable Treasury securities All Rate Spread reported loans will not be HOEPA. HOEPA: Application date Covered if difference exceeds 8 or 10 percentage points or fee trigger is exceeded Must use Board s H 15 to find comparable Treasury securities All HOEPA reported loans will have a Rate Spread reported Mission Possible * Blenden 30

31 61 In Person Applications Applicant and co applicant must be given the GMI data collection form either as a part of loan application or as a separate form Be sure the form includes the statement of the purpose of collecting GMI Don t second guess information provided by the applicant(s) If not provided, loan officer must complete GMI based upon visual observation and surname. Indicate that GMI was provided by the loan officer NOTE: If there are more than 2 individual applicants, obtain GMI on all applicants even though there is only room to report GMI on 2 of the applicants (regardless of whether in person, telephone, etc.) Mission Possible * Blenden 31

32 Internet or Mail Applications Ask for the GMI on the application itself or a separate form If not provided by the applicant(s), note that the application was made over the Internet or via mail and the information was not provided. Even if officer saw the applicant(s) later at closing, do not provide the GMI. Nothing is required after receipt of the application. 63 Telephone Applications The loan officer must verbally request the GMI from the customer Read the script that is required to notify the applicant that the GMI is not mandatory If the applicant declines, note that on the GMI form Don t guess at the race, sex or ethnicity based on the person s voice or other factors (i.e. name) Mission Possible * Blenden 32

33 HMDA LAR Tips Preapprovals are only reported for Home Purchase Loans If LAR Preapproval field is 1 (PA requested) or 2 (PA not requested), Purpose of the Loan field must be 1 (home purchase) Otherwise, field should be 3 = N/A Reasons for Denial is the only LAR field that can be left blank OCC or OTS require reasons All other Agencies make it optional Should only be present for Denied (Action Taken = 3) 65 HMDA LAR Tips The only times Race, Ethnicity and Sex should be reported as Not Applicable Loan is a purchased reportable loan Applicant or Co Applicant is not a natural person (entity such as LLC, corporation, etc.) If there is no co applicant, use the code for relevant fields No Co Applicant in all If there are more than one co applicants, report the information on the first one listed on the application form If property type is Multifamily (Code 3), then income should always be NA If no income is asked for or relied upon in the credit decision, report income as NA Mission Possible * Blenden 33

34 Entity as Applicant or Borrower Always report these fields as Not Applicable for Entities: Ethnicity Race Sex Income Rate Spread HOEPA Status Owner occupancy should never be reported as Code 1 = owner occupied 67 Purchased Loans HMDA LAR Tips Application date should always be N/A Preapprovals should always be N/A Denial Reasons should always be blank Rate spread should always be N/A HOEPA status should always be Not HOEPA Lien status should always be N/A Race and Ethnicity can be reported if known or can opt to report as Not Applicable Mission Possible * Blenden 34

35 Government Monitoring Info Reminders If the applicant chooses not to provide the information for an application taken in person, note this fact on the form and then note the applicant s ethnicity, race, and sex on the basis of visual observation and surname, to the extent possible. If the applicant declines to answer these questions or fails to provide the information on an application taken by mail or telephone or over the Internet, the data need not be provided. In such a case, indicate that the application was received by mail, telephone, or Internet, if it is not otherwise evident on the face of the application. Do NOT report if see them later after application, such as at closing itself. 69 FRB Outlook Live * Tips for Reporting Accurate HMDA and CRA Data * Mission Possible * Blenden 35

36 FRB Outlook Live * Tips for Reporting Accurate HMDA and CRA Data * FRB Outlook Live * Tips for Reporting Accurate HMDA and CRA Data * Mission Possible * Blenden 36

37 FRB Outlook Live * Tips for Reporting Accurate HMDA and CRA Data * Statutory & Regulatory Purposes of HMDA Data HMDA Purposes Provide the citizens and public officials of the U.S. sufficient information: to enable them to determine whether covered institutions are filling their obligations to serve the housing needs of the communities and neighborhoods in which they are located; and to assist public officials in distributing public sector investments in a manner designed to improve the private environment. Regulation C Purposes Assist in identifying possible discriminatory lending patterns and enforcing antidiscrimination statutes. HMDA data enhances our understanding of the mortgage market. CFPB Presentation on HMDA: Michael Byrne, HMDA Operations Lead, 9/23/ Mission Possible * Blenden 37

38 Current Strengths & Limitations of HMDA Data Strengths: Only comprehensive mortgage dataset with race/ethnicity and income Covers a majority of housing related loans Clean data overall Limitations: No performance data Difficult to match first and second loans No rural data Difficult to understand the channel no mortgage broker flag Difficult to control for creditworthiness Difficult for the public to use the data that s made available Released to the public with a 9 to 21 month lag, in year increments CFPB Presentation on HMDA: Michael Byrne, HMDA Operations Lead, 9/23/14 75 HMDA Tools CFPB Presentation on HMDA: Michael Byrne, HMDA Operations Lead, 9/23/ Mission Possible * Blenden 38

39 Application/ Loan Information Property Information Applicant/ Borrower Information Proposed Regulation C Reporting and Dodd Frank Additions Current Regulation C Reporting Application/loan ID number Date the application was received Type of loan or application Purpose of loan or application Request for preapproval and result of preapproval request Application/loan amount Action taken type Date of action taken Type of purchaser of loan Rate spread (higher-priced loans) HOEPA status Lien status Reasons for denial (at FI s option) Property type Owner occupancy Property location, by: MSA or Metropolitan Division State County, and Census tract Race Ethnicity Sex Gross annual income Dodd-Frank additions Total points and fees Rate spread (for all loans) Prepayment penalty term Introductory interest rate term Nonamortizing features Loan term Application channel (retail, broker, other) Universal loan ID* Loan originator ID* Property value Parcel ID* Age Credit score CFPB Presentation on HMDA: Michael Byrne, HMDA Operations Lead, 9/23/14 The Dodd-Frank Act provides for the collection and reporting of specific identifiers as the Bureau may determine to be appropriate. 77 Data Points: Proposals Under Consideration Application/ Loan Information Property Information Borrower Information Other info Automated underwriting systems (AUS) results Making it mandatory, rather than optional, denial reasons Qualified Mortgage (QM) status of loan, as determined by the FI Combined loan-to-value (CLTV) ratio Additional points and fees information, including: Total origination charges Total discount points Borrower s risk-adjusted, pre-discounted interest rate Interest rate received Replacing property type with number of units financed and dwelling s construction method Whether multifamily property has an affordable housing deed restriction Information concerning manufactured housing: Whether the loan is secured by real or personal property Whether homeowner rents or owns the property where home is sited Debt-to-income ratio Unique FI entity identification number (to modify or replace the current Reporter s identification number) In addition, the Bureau is considering expanding the existing loan purpose data point (or otherwise revising Regulation C) to provide for separate reporting of cash-out refinance, reverse mortgage, and home equity line of credit (HELOC) transactions. CFPB Presentation on HMDA: Michael Byrne, HMDA Operations Lead, 9/23/ Mission Possible * Blenden 39

40 Alignment with MISMO data standards To significantly mitigate burden and improve the quality of data collected and reported, the CFPB is considering aligning HMDA data requirements to the greatest extent practicable with industrydefined mortgage data standards Considering standards adopted by MISMO Considering further alignment with the Uniform Loan Delivery Dataset (ULDD), developed by Fannie Mae and Freddie Mac (collectively, the GSEs) as requirements for their purchase of mortgage loans in the secondary market CFPB Presentation on HMDA: Michael Byrne, HMDA Operations Lead, 9/23/14 79 Critical Data Risks Mission Possible * Blenden 40

41 Prepared Remarks of CFPB Director Richard Cordray on the HMDA Press Call, February 7, 2014 When Congress enacted the Dodd Frank Act in 2010, it specifically tasked us, the Consumer Financial Protection Bureau, with getting better information from mortgage lenders. Congress directed us to improve HMDA reporting because, just as Louis Brandeis, America s original consumer advocate and later a distinguished Supreme Court Justice, observed, Sunlight is said to be the best of disinfectants; electric light the most efficient policeman. 81 Understanding Examination Risks Mission Possible * Blenden 41

42 FDIC Supervisory Insights Summer 2006 Assessing Impact of 2004 HMDA Reporting Requirements 2004 HMDA Data Additions Greatest impact on fair lending examination process were the new elements: Rate Spreads Applicable to consumer originations of home purchase, dwelling secured home improvement, and refi loans. Home Ownership and Equity Protection Act (HOEPA) Status reported for HMDA loans Modified racial/ethnic categories Lenders were required to ask applicants their race, national origin, and sex in applications taken entirely by telephone effective January 1, The revised ethnicity and race categories did not take effect until January 1, FDIC Supervisory Insights Summer 2006 Assessing Impact of 2004 HMDA Reporting Requirements Examiners consider pricing systems and discretionary pricing practices in conjunction with the new pricing data as a part of the scoping process whenever they examine any HMDA reporter. When significant disparities are found in a system that permits pricing discretion, a comparative loan file analysis is conducted to determine the reason for the pricing differences. The addition of rate spread and HOEPA information to the 2004 HMDA data provided examiners additional tools to scope and focus fair lending examinations. Examiners use the data to compare different lenders in the market and to more readily identify secondary market loans Mission Possible * Blenden 42

43 FDIC Supervisory Insights Dec 2007 HMDA Data: Identifying and Analyzing Outliers Initial Screening FDIC examiners, economists, fair lending specialists, and policy analysts work together to identify institutions that exhibit a greater risk of fair lending violations. As part of this work, the FDIC uses the HMDA pricing data to identify specific institutions that demonstrate any of the following characteristics: A disparity between the average annual percentage rate for protected classes (minorities and women) and non protected classes; A high incidence of higher priced mortgages for protected classes; and A high incidence of HOEPA loans for protected classes. 85 FDIC Supervisory Insights Dec 2007 HMDA Data: Identifying and Analyzing Outliers HMDA LARs do not currently include key underwriting criteria, such as, but not limited to: Loan to value (LTV) ratios Debt to income (DTI) ratios Credit scores To detect illegal discrimination using HMDA data, a series of careful steps are required. The FDIC will review for potential pricing discrepancies that may be discriminatory to identify outlier institutions Mission Possible * Blenden 43

44 FDIC Supervisory Insights Dec 2007 HMDA Data: Identifying and Analyzing Outliers Criteria Interviews If a more in depth review of an outlier bank is needed, fair lending specialists and examiners conduct criteria interviews with bank management. The primary purpose of the criteria interviews is to gain an understanding of the parameters loan officers use to make pricing decisions. FDIC uses the information the bank provides during the criteria interviews to determine which factors and variables to use in the statistical analysis that we develop for the bank each statistical analysis is customized on the basis of pricing criteria the individual bank provides. 87 FDIC Supervisory Insights Dec 2007 HMDA Data: Identifying and Analyzing Outliers File Reviews and Follow Up Statistical Analysis After the criteria interviews are completed and the analysis framework is developed examiners gather data from each loan file relevant to the bank s pricing criteria. To address the pricing criteria a bank uses, each statistical analysis is developed individually for the bank in question. FDIC s analysis may show that once we control for various nondiscretionary pricing factors that are not included in HMDA data, there is no longer evidence that discrimination in pricing exists Mission Possible * Blenden 44

45 FDIC Supervisory Insights Dec 2007 HMDA Data: Identifying and Analyzing Outliers Notification to Bank of Reason to Believe If the analysis indicates that the difference in pricing cannot be explained by nondiscretionary pricing policies, the FDIC formally notifies the bank that we have reason to believe that discrimination in loan pricing exists. The bank is given an opportunity to respond and submit any additional information for the FDIC to consider in determining whether the lending discrimination laws have been violated. Through this process bank management sometimes realizes not all of the pricing criteria actually used were provided to the FDIC during the criteria interview and will cite new criteria to be included in a statistical analysis. 89 FDIC Supervisory Insights Dec 2007 HMDA Data: Identifying and Analyzing Outliers Referral to the Department of Justice If the FDIC finds that the information the bank submits does not convincingly refute the preliminary finding of discrimination, we finalize the examination and refer the case to the Department of Justice (DOJ). The DOJ may conduct its own investigation and go forward with a case, or it may defer to the FDIC s supervisory and enforcement process Mission Possible * Blenden 45

46 FDIC Supervisory Insights Dec 2007 HMDA Data: Identifying and Analyzing Outliers Department of Justice Referrals Pursuant to the ECOA statute, agencies shall refer the matter to the Attorney General whenever the agency has reason to believe that one or more creditors has engaged in a pattern or practice of discouraging or denying applications for credit in violation of section 1691(a) of this title. 15 U.S.C. 1691e(g) 91 FDIC Supervisory Insights Dec 2007 HMDA Data: Identifying and Analyzing Outliers Fair Lending Lessons Learned 1. Removing discretion in pricing decisions reduces risk of discrimination. 2. Documentation minimizes questions. 3. Comprehensive information enables accurate analyses. 4. Monitoring of pricing decisions is essential Mission Possible * Blenden 46

47 CFPB: Effective HMDA Compliance Management 1. Comprehensive policies, procedures, and internal controls 2. Comprehensive and regular internal, pre submission HMDA audits, to test and evaluate data accuracy, appropriate to the size and complexity of the institution 3. Reviews of any regulatory changes 4. Reporting systems that are appropriate given the loan volume 5. One or more individuals assigned responsibility for oversight, data entry, and data updates 6. Appropriate, sufficient, and periodic employee training to ensure that responsible personnel understand HMDA and Regulation C 7. Effective corrective action 8. Appropriate board and management oversight 93 HMDA Resubmission Standards Institutions should be required to correct and resubmit data in certain key fields on the HMDA Loan Application Register (LAR) when at least 5.0% of the files sampled contain inaccurate data within a key field. Errors in rounding in the loan amount and income fields should not be counted toward the 5.0% resubmission standard, although the violations should be cited and the bank should report the data correctly in the future Mission Possible * Blenden 47

48 Key HMDA Data Fields for Integrity Checks Loan type Loan purpose Property type Owner occupancy Loan amount Action taken type Request for preapproval Application date MSA State County Census Tract Lien status Type of purchaser Rate spread Ethnicity of applicant and co app (1) Race of applicant and co app (1) Sex of applicant and co app (1) Income HOEPA/HCML status (1) Never record these for an entity applicant. If commercial loan is to an individual, collect and report this information. Underlined items are never required for business purpose loans. 95 FDIC HMDA Data Validation Procedures If at least 10.0% of the sampled files contain an error in at least one key field, the entire HMDA LAR must be resubmitted. The institution must verify the data in each of the fields, not just in those with an error rate greater than 5.0%. To ensure accuracy of reported data Correction and resubmission may be required if: For reporters with fewer than 100 entries, key data field errors are identified in 20% or more of the files sampled or if there is an error rate generally above 10% in any one key data field For reporters with 100 or more entries, key data field errors are identified in an estimated 10% or more of files sampled or if there is an error rate of generally 5% or more in any one key data field Mission Possible * Blenden 48

49 HMDA LAR Record Retention The bank must retain a copy of the completed HMDA LAR for a period of not less than 3 years Retain a copy of the past 2 calendar years LAR in the CRA Public File as well Place LAR in file within 3 business days of receipt 97 Great HMDA Tools FFIEC s Guide to Getting it Right CFPB HMDA Database Also includes a HMDA overview video CFPB HMDA Resubmission Guidelines _cfpb_hmda_resubmission guidelines_fairlending.pdf CFPB HMDA Regulation C bin/textidx?c=ecfr&tpl=/ecfrbrowse/title12/12cfr1 003_main_02.tpl HMDA Resources HMDA Analysis Reports CRA Materials General Interagency Fair Lending Exam Procedures Mission Possible * Blenden 49

50 HMDA Webinar, Q&A s and Other Tools Philadelphia FRB Consumer Compliance Outlook Webinar, November live/2010/hmda and cra data/ Philadelphia FRB Consumer Compliance Outlook, Second Quarter resources/publications/consumer complianceoutlook/2011/second quarter/cco_q2_11.pdf FDIC s HMDA Data Validation Presentation hmda.pdf Preapproval or Prequalification: What's the Difference? resources/publications/compliancecorner/2004/second quarter/q2cc2_04.cfm 99 PATTI JOYNER BLENDEN BLENDENPG@GMAIL.COM THANKS FOR YOUR PARTICIPATION! Mission Possible * Blenden 50