The CFPB and HMDA Changes. QuestSoft CFPB HMDA Webinar 8/19/

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1 Please stand by, the presentation will begin shortly. Your phones have been muted. If you re using the speakers on your PC you don t need to call in. While you are waiting, you may download the presentation outline at: QuestSoft.com/HMDAWebinar Please stand by, the presentation will begin at the top of the hour. Your phones have been muted. If you re using the speakers on your PC you don t need to call in. = While you are waiting, you may download the presentation outline at: QuestSoft.com/HMDAWebinar YOU MAY ALSO like us on or follow us on facebook.com/questsoft twitter.com/questsoft TO DOWNLOAD THE PRESENTATION The CFPB and HMDA Changes Thank you for attending. The webinar has started. 1

2 Housekeeping Asking Questions Downloading Materials Technical Difficulties Go To Meeting Support Disclaimer facebook.com/questsoft twitter.com/questsoft Reminders for QuestSoft Customers HMDA RELIEF Update Released Last Week - Contains mid-year FFIEC Edits - Enhances Ellie Mae/Calyx/D+H imports and adds a number of new features New Instant Geocoder Module - Quarterly update includes over 600,000 new addresses and repositionings - NEW! We now offer CDFI and Empowerment Zone information NMLS Mortgage Call Report (MCR) - NEW! Added Section II for import and reporting - Updated to NMLS MCR required Form Version 3 New CRA & Mapping Features CRA RELIEF updated with substantial new features - Contains mid-year FFIEC Edits - NEW! Integrated Mapping Module - One button request to convert loan and other CRA data into an Instant Map - NEW! Integrated Peer Data and Reports - 13 reports created instantly that compare your CRA performance to all peers in your assessment area(s). 2

3 One Last Thing Mortgage Tech Magazine Lenders Choice - Only TWO Days left to vote - Voting is for 3 best vendors (Gold is #1, Silver #2, Bronze #3) Today s Presenters Warren W. Traiger Counsel BuckleySandler LLP Moderator Leonard Ryan President QuestSoft Corporation Scott Mortenson Marketing Director QuestSoft Corporation The CFPB and HMDA Changes AGENDA What s Being Proposed Now? Rationale for the Changes Impact on Fair Lending Compliance Comparison of Data Fields to Today s HMDA QuestSoft s Implementation Plans Parts of the Rule You Can Still Influence Need For Planning, Not For Panic Questions & Answers 3

4 A Very Brief History of HMDA Enacted by Congress in 1975 in reaction to allegations by public officials and community advocates that lenders were redlining and disinvesting in urban communities. Applied only to larger banks (not bank subsidiaries or nonbank mortgage lenders), which reported the number and dollar amount of home improvement and residential mortgage loans by location. Government Monitoring Information (i.e., information on applicant race, ethnicity and sex) was not collected. A Very Brief History of HMDA (con t) Key Amendments: Coverage expanded to mortgage banking subsidiaries of bank and savings and loan holding companies and to savings and loan service corporations that originate or purchase mortgage loans Coverage expanded to non-bank mortgage lenders and disclosure of applicant race, gender, and income is required on an application-by-application basis Federal Reserve Board requires reporting of pricing information for higher-priced mortgage loans and identification of loans subject to HOEPA and required lenders to ask applicants for their ethnicity, race, and sex in telephone applications A Very Brief History of HMDA (con t) Key Amendments: The Dodd-Frank Wall Street Reform and Consumer Protection Act is enacted in response to the mortgage market crisis. The Dodd-Frank Act moved HMDA rulemaking responsibility from the Fed to the CFPB and directed the CFPB to expand the HMDA dataset to include additional information that would be helpful to better understand whether lenders are serving the housing needs of their communities and to identify possible discriminatory lending patterns. Dodd-Frank specified new data points for collection and provided the Bureau with broad authority to require the collection of other data points and to change the format and submission requirements for HMDA reporting. 4

5 What s Being Proposed Now? Expanded product coverage and new data fields: The proposal would expand HMDA coverage to mandate the reporting of open-end lines of credit, home-equity loans, reverse mortgages, and preapproval requests that were approved, but not accepted. Together with additional data fields, such as amortization type, prepayment penalty, and occupancy type, the CFPB believes this information would improve understanding of the types of products received by consumers, specifically that: the additional transactions and data points would improve current research efforts to understand mortgage markets. This research may identify new risk factors that might increase systemic risk to the overall economy. What s Being Proposed Now? (con t) Key new collection and reporting requirements: Applicant Age This will allow sorting of data by applicant age, as well as race, ethnicity and sex Property Value Used with loan amount, this will allow calculations of the loanto-value ratio (LTV), which measures a borrower s equity in the property and is a key underwriting and pricing factor Credit Score Allows for a more refined analysis and understanding of disparities in both underwriting and pricing outcomes What s Being Proposed Now? (con t) Key new collection and reporting requirements: Loan Term Helps determine the amount of principal due with each payment, which significantly influences both the borrower s ability to afford the loan and the amount of interest the borrower will pay over the life of the loan Total Points and Fees Enables deeper insight into the terms on which different communities are offered loans Interest Rate and the Duration of Teaser or Introductory Rates Interest rate variability can be an important feature in long-term affordability for borrowers 5

6 Rationale for the Changes To improve the usefulness of HMDA data in identifying possible discriminatory lending patterns and enforcing antidiscrimination statutes: The addition of pricing data fields such as interest rate, discount points, and origination charges improves understanding of disparities in pricing outcomes beyond that permitted by the current rate spread data field. Overall, the proposed changes make fair lending analyses more comprehensive and accurate. This is especially important for the prioritization and peer analysis or redlining reviews that regulatory agencies conduct for fair lending supervision and enforcement purposes because a consistent and clean dataset will be available for all financial institutions. Impact on Fair Lending Compliance (con t) The data to be reported under the CFPB's proposal is likely to inflame the current fair lending regulatory environment. Proposal allows regulators to analyze mortgage lending practices by applicants' age as well as by race, ethnicity and sex. Information that is currently proprietary, like applicants' credit scores and debt to income ratios and loan fees and interest rates, will now be shared annually with the CFPB and other regulators. Regulators will no longer need to wait until examination time to assess a lender s compliance with the anti discrimination laws, since they will have annual access to a panoply of sensitive data from almost every mortgage lender. Agencies will be able to routinely crunch and compare data from across the industry and in any geographic area. Impact on Fair Lending Compliance (con t) It may be only a matter of time until the enhanced data becomes public, facilitating analyses by the media and advocacy groups. The CFPB has delayed consideration of what data should be released, but its proposal states that public HMDA data [should] be modified only when the release of the unmodified data creates risks to applicant and borrower privacy interests that are not justified by the benefits of such release to the public. In other words, protecting the privacy of mortgage applicants will be the only limit on how the data is released. 6

7 The Tech Side of CFPB HMDA The CFPB is Proposing 39 New Fields - Borrower Data - Loan & Fee Data - Underwriting Supplement Data - Other noticeable additions - HELOCS/Reverse Mortgages are required reporting - Denial Reason required - Rate Spread reported on all loans and amounts below spread reported The Tech Side of CFPB HMDA The CFPB s 39 New Fields Age Borrower Age Co Applicant Application Channel Initially Payable Application Channel Direct Application Application Loan # (Universal Loan Identifier) APR Automated Underwriting System used Automated Underwriting System recommendation Balloon Payment (months) CLTV Construction Method Credit Score 1 Credit Score 2 Credit Score Provider 1 Credit Score Provider 2 DTI Ratio HELOC /Open End Reverse Mortgage First Draw HELOC Flag Initial Adjustment Period (mo.) Interest Only Payments Interest Rate Risk Adjusted, Pre Discount The Tech Side of CFPB HMDA The CFPB s 39 New Fields Manufactured Home Land Property Interest Manufactured Home Legal Classification Multifamily Affordable Units Negative Amortization NMLS Branch ID** (part of ULI) NMLS Rep ID Primary Other Non Amortizing Features Points and Fees $ Prepayment Penalty (mo.) Property Address Property City Property State Property Value (sales or appraised value) Property Zip Qualified Mortgage (QM) Flag Reverse Mortgage Flag Total Discount Points ($) Total Origination Charges Total Units 7

8 Good News for QS Customers QuestSoft Already has 22 Fields Today - Only 18 fields to add (half are true/false fields) Application Channel Initially Payable Application Channel Direct Application Automated Underwriting System Automated Underwriting System Recommendation Balloon Payment Construction Method HELOC /Open End Reverse Mort First Draw HELOC Flag Interest Only Payments Interest Rate Risk Adjusted, Pre Discount Manufactured Home Land Property Interest Manufactured Home Legal Classification Multifamily Affordable Units Negative Amortization Other Non Amortizing Features Qualified Mortgage (QM) Flag Reverse Mortgage Flag Total Units QuestSoft Implementation Plans Concentrate our Customers Attention to Preliminary Rule Deadline ( ) Begin Design for Including Fields in QuestSoft products NOW! Wait Until Final Rule to Finalize Specifications for our LOS Partners Match HMDA to RESPA/TILA as close as possible to reduce overlap After October 22, concentrate on LOS with RESPA/TILA & HMDA What CFPB CANNOT Change Required Elements (Section 1094) Total Points and Fees Payable at Origination Rate Spreads applied to ALL Loans (currently only those subject to Reg Z) Prepayment Penalty Months Property Value (appraised value) First Adjustment Term in months to first interest adjustment Identification of ANY loan not fully amortized Loan Term (in months) Lending Channel (Retail, Wholesale, Correspondent) Credit Score in a form to be determined by CFPB Any other information the CFPB may require 8

9 What CFPB Will Not Change Optional Elements (Section 1094) Unique Identifier of Loan Originator (NMLS LO ID) Universal Loan Identifier (ULI) to track loan throughout process starts with Legal Entity Identifier (LEI) Detailed Borrower Information (Credit Scores, Age, DTI) Detailed Loan Information (AUS Decision, LTV, CLTV, HELOC, IO, QM, Fees) Any other information the CFPB may require Where To Focus Comments Parcel Number This one is very controversial huge privacy issues CFPB proposing to use it and make it public but acting like they are open either way. Property Address, City, State, Zip Being marketed as a possible path to free geocoding but plans are to distribute to education and community groups Quarterly Reporting The CFPB picked 75,000 LAR and cumulative. Is it the right number? Reporting Minimums at 25 Loans Per Year QuestSoft feels this should be set at 100 or at least 50. This affects community banks, small credit unions and non depository private money lenders Where To Focus Comments (con t) Credit Score Provider and AUS Reporting Both has a specific list that will financially benefit those providers. Are there additional vendors that need to be added? Definition of Application QuestSoft will be encouraging the use of the new RESPA/TILA standard with six data elements so it can be easily programmed by the industry. Data Elements to Include in Public LAR CFPB proposing to use today s limited disclosure to start (good news). However, the commentary points to expanding the information as quickly as possible. Reading between the lines this means diffuse the lending industry and privacy advocates concerns today to get this implemented and then after the furor dies down gradually make everything public as originally intended. 9

10 Where To Focus Comments (con t) Loan Types Excluded From HMDA Reporting Every loan that attaches a lien to a property is to be reported EXCEPT THESE under the new HMDA. Do you want to make the case for any adjustments to the list? Loans originated or purchased in a fiduciary capacity (i.e. received from FDIC closing a bank) Unimproved Land Temporary Financing The purchase of an interest in a pool of loans Purchasing of Servicing Rights only Loans purchased as part of a Mergers or Acquisition Loans Under $500, Purchase of a Partial Interest, or agriculture loans WARNING: Instant Fair Lending! Everything is pointing to highly automated FAIR LENDING The analysis will be created within minutes Data Accuracy and Integrity MUST be elevated There will be no second chance with the media and community groups You might convince a regulator on mistakes Community groups will publish on front page your first results Corrections will be in a little box on an inside page There is Still Good News Today Don t Panic! You Have Time To Adjust The new CFPB HMDA will not take effect until either January 1, 2016 or January 1, Use this time to evaluate and adjust your operation s training and policies if needed. You Still Have A Voice. Make it Heard NOW! Take advantage that these are preliminary rules and actively participate in comments. You don t need a formal letter any more. You can electronically submit your comments. But you have nothing to fight about after Don t Worry More About HMDA If your company is doing a good job, this doesn t change anything. If your company is doing a lousy job, you need to clean it up under today s rules anyway. We have RESPA/TILA to really worry about next. Place it all in the proper perspective. 10

11 The CFPB and HMDA Changes QUESTIONS & ANSWERS If you have a question, please submit it using the questions tab on the GoToWebinar tool bar. The CFPB and HMDA Changes QuestSoft will be reviewing the questions received during this webinar and working with our presenters to create a Q&A document for all attendees. We expect to be able to deliver that to you within the next 10 business days. This concludes the webinar presentation. Thank you for attending! You may download the presentation outline at: QuestSoft.com/HMDAWebinar 11