Regulators Propose New Reporting Requirements for Home Mortgages

Regulators Propose New Reporting Requirements for Home Mortgages

On July 24, 2014, the Consumer Financial Protection Bureau (CFPB) proposed amendments to the Home Mortgage Disclosure Act (HMDA), including new and clarified reporting requirements that could have a major impact on financial services firms. Although the CFPB hinted that a new rule was forthcoming, the size and scope of the proposed changes took many industry observers by surprise.

A detailed document that includes all 573 pages of the proposed rule can be downloaded from the CFPB website; however, the key changes can be summarized and grouped into five broad categories:

  1. Who would be covered by the proposed rule? The rule would apply to any institution (bank or non-bank) that makes 25 or more covered loans in a year. This is a simpler definition than previously applied.
  2. What loans would be covered? The rule would apply to closed-end loans, open-ended lines of credit and reverse mortgages secured by property. Unsecured home improvement loans — which can be tricky to substantiate — would no longer be covered.
  3. What data would need to be reported? The rule would require 37 new data elements — 17 stemming from Dodd-Frank requirements and 20 introduced by the CFPB — including detailed information about the individual borrower, features of the loan, property used to secure the loan and loan officer evaluating the application.
  4. When would reports be filed? Institutions that conduct more than 75,000 covered loan transactions during a rolling 12-month period would be required to file a report at the end of each quarter. Institutions with lower transaction volumes would continue to report annually.
  5. How would reports be filed? The proposed rule introduces a web-based submission process in lieu of the current process that requires institutions to use custom software to transmit reports.

The new reporting requirements are designed to generate information that is more detailed, timely and accurate, giving the CFPB the data it needs to better analyze and enforce fair lending laws, monitor and identify trends and issues in various market sectors, and assess the effectiveness of the “Ability to Repay” rules. In this regard, it will generate public benefits. However, the new requirements will likely create a significant burden for banking and nonbanking financial institutions. Institutions already spend a great deal of time and money complying with the existing rules for annual HMDA reporting, and the need to provide an expanded set of data on a quarterly basis could significantly add to level of effort and related costs.

Affected institutions should consider conducting an internal assessment to understand how the proposed rule will impact their systems and processes — and then begin creating a road map for compliance. Institutions might also contact the CFPB during the comment period (which ends October 22, 2014) to share information with the CFPB regarding the level of effort needed to achieve compliance with the new requirements and to provide technical comments as appropriate.

Posted by Tom Rollauer, Executive Director, Center for Regulatory Strategies, Deloitte & Touche LLP, John Graetz, Principal, Deloitte & Touche LLP and Tamara Milliken, Director, Deloitte & Touche LLP

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