Whether you love it or hate it, HMDA is a reality. The Home Mortgage Disclosure
Act requires that banks and lenders gather information about a borrower
and provide loan details, including loan terms and conditions, in the
form of early disclosures. Under the Dodd-Frank Wall Street Reform and
Consumer Protection Act, the Consumer Financial Protection Bureau (CFPB)
was tasked with providing a final HMDA rule with further enhancements
dictated under the financial reform law.
In 2015, the CFPB enacted a final HMDA rule that included many of the enhancements
mandated under Dodd-Frank and is scheduled to go into effect next year.
However, not all industry stakeholders are excited to implement the new
rule. Dan Berger, the President, and CEO of the National Association of
Federal Credit Unions (NAFCU), urged CFPB Director to delay the rule’s
implementation for one year.
Although Berger praises the new rule as a fix for some of the “various
issues” plaguing the lending industry, he also believes that in
its current form, the rule will do more harm than good. In a letter to
Cordray, Berger wrote, “Credit unions appreciate measures taken
by regulators intended to correct errors and offer additional clarifications
… That being said, no amount of 11th hour tinkering with technical
amendments can offset the tremendous burden being hoisted upon credit
unions and their vendors as a result of the Final Rule.”
Mr. Berger also expressed the concern relayed by many credit unions and
their vendors over preparing for the Final Rule launch. He believes more
time is needed for financial institutions to better prepare for implementing
the requirements mandated by the new regulations.
The American Bankers Association (ABA) also voiced its displeasure with
the rule’s implementation, writing in a white paper that the CFPB
is overreaching with the Final Rule and that the “unnecessary data
variables” in HMDA will increase the regulatory burdens for banks
and expose consumers’ personal information to potential identity theft.
As it stands, the new HMDA Final Rule will become effective January 1,
2018. The CFPB regulations will expand the amount of data that is required
to be collected from borrowers, establish transaction thresholds, and
enhance reporting requirements for financial institutions, among other
things. As a critical component of its fair lending enforcement, the CFPB
hopes that changes within the rule will provide better consumer protection
against excessive fees and abusive lending practices.
For over a decade, the federal government has been frustrated with the
lack of comprehensive housing data needed to determine predatory lending
practices. So, under Dodd-Frank, HMDA was revised to gather more information
about lending practices, including detailing those loans with exorbitant
fees, high debt-to-income ratios, adjustable-rate loans, payday loans,
and other financial products that have a propensity to fail due to their
For all the purported good touted by HMDA supporters, there is an equal
amount of “bad” in the new rule. It is estimated that increased
cost of compliance to the lending industry will grow to between $177 million
to $326 million. Opponents claim that the new implementation costs, which
are easily borne by the largest financial institutions, will have a detrimental
effect on credit unions and smaller lenders who do not have the proper
infrastructure in place needed for compliance.
Any way you slice it, the new HMDA is coming, and you better get prepared.
Understanding and being aware of the changes coming your way can be the
difference between profitability and disaster. Compliance will not be
easy, but it is crucial that you understand what is required by the rule
and how best to comply.