By Rose Oswald Poels
As I first reported in the November 1 Executive Letter, a recent court case resulted in the lowering of the reporting threshold for close-end mortgage loans under HMDA. I wanted to alert you to a technical amendment recently issued by CFPB to Regulation C. The technical amendment followed a previously issued blog post by CFPB. The amendment is effective December 21, 2022.
In April 2020, CFPB issued a final rule (2020 HMDA Rule) to amend Regulation C to increase the threshold for reporting data about closed-end mortgage loans. The 2020 HMDA Rule increased the closed-end mortgage loan reporting threshold from 25 loans to 100 loans in each of the two preceding calendar years, effective July 1, 2020.
On September 23, 2022, the United States District Court for the District of Columbia vacated the 2020 HMDA Rule as to the increased loan-volume reporting threshold for closed-end mortgage loans. As a result of the September 23, 2022 order, the threshold for reporting data about closed-end mortgage loans is 25, the threshold established by the 2015 HMDA Rule. Accordingly, the technical amendment updates the Code of Federal Regulations to reflect the closed-end mortgage loan reporting threshold of 25 mortgage loans in each of the two preceding calendar years.
HMDA requires certain banks, savings associations, credit unions, and for-profit non-depository institutions to collect, report, and disclose data about originations and purchases of mortgage loans, as well as mortgage loan applications that do not result in originations (for example, applications that are denied or withdrawn). CFPB’s Regulation C, 12 CFR part 1003, implements HMDA, 12 U.S.C. 2801 through 2810.
In October 2015, CFPB issued a final rule (2015 HMDA Rule) that, among other things, established institutional and transactional loan-volume coverage thresholds in Regulation C that determine whether financial institutions are required to report certain HMDA data on closed-end mortgage loans or open-end lines of credit. The thresholds apply uniformly to covered depository and non-depository institutions; they took effect for depository institutions on January 1, 2017, and for non-depository institutions on January 1, 2018. The loan-volume thresholds in the 2015 HMDA Rule required an institution that originated at least 25 closed-end mortgage loans or at least 100 open-end lines of credit in each of the two preceding calendar years to report HMDA data, provided that the institution meets all other criteria for institutional coverage.
In April 2020, CFPB issued a final rule (2020 HMDA Rule) to amend Regulation C to increase the thresholds for reporting data on both closed-end mortgage loans and open-end lines of credit. In particular, the 2020 HMDA Rule set the closed-end mortgage loan reporting threshold at 100 in each of the two preceding calendar years, effective July 1, 2020, and the open-end line of credit reporting threshold at 200 in each of the two preceding calendar years, effective January 1, 2022.
On July 30, 2020, five nonprofit organizations and the City of Toledo, Ohio, initiated a lawsuit challenging the 2020 HMDA Rule. On September 23, 2022, the United States District Court for the District of Columbia concluded that the 2020 HMDA Rule’s increased reporting threshold for closed-end mortgage loans was arbitrary and capricious. The court issued an order vacating and remanding the loan-volume reporting threshold for closed-end mortgage loans under the 2020 HMDA Rule. Accordingly, the threshold for reporting data about closed-end mortgage loans is 25 in each of the two preceding calendar years, which is the threshold set by the 2015 HMDA Rule.
The technical amendment reflects the vacatur in the Code of Federal Regulations by replacing the closed-end reporting threshold numbers in Regulation C sections 1003.2(g)(1)(v)(A), (2)(ii)(A), and 1003.3(c)(11) as well as comments 2(g)–5 and 3(c)(11)–2 which became effective on June 30, 2020; and replacing in their entirety, comments 2(g)–1 and 3(c)(11)–1 with the versions in effect on June 30, 2020.
Separate CFPB Statement
On December 6, 2022, a blog post appeared on CFPB’s website regarding the change to HMDA’s closed-end reporting threshold as a result of the court case. In that post, CFPB stated:
“The CFPB recognizes that financial institutions affected by this change may need time to implement or adjust policies, procedures, systems, and operations to come into compliance with their reporting obligations. In these limited circumstances, in allocating the CFPB’s enforcement and supervisory resources, the CFPB does not view action regarding these institutions’ HMDA data as a priority. Thus, the CFPB does not intend to initiate enforcement actions or cite HMDA violations for failures to report closed-end mortgage loan data collected in 2022, 2021, or 2020 for institutions subject to the CFPB’s enforcement or supervisory jurisdiction that meet Regulation C’s other coverage requirements and originated at least 25 closed-end mortgage loans in each of the two preceding calendar years but fewer than 100 closed-end mortgage loans in either or both of the two preceding calendar years.”
Unfortunately, the blog post did not offer further guidance to first assist small banks with how best to proceed given the new lower threshold. No other banking regulator has issued guidance as a result of the court case or CFPB’s releases. Given the impact of the court case and technical amendment to Regulation C, I recommend that banks which meet the 25 closed-end mortgage loan threshold for 2021 and 2022 should look to collect and report closed-end mortgage loan HMDA data for 2023. The exemption threshold for open-end lines of credit remains untouched at 200 open-end lines of credit originated in each of the prior two years.