The below article is the Special Focus section of the September 2018 Compliance Journal. The full issue may be viewed by clicking here.
On July 5, 2018, the Bureau of Consumer Financial Protection (CFPB) issued an interpretive and procedural rule (the rule) to implement and clarify portions of the Economic Growth, Regulatory Relief, and Consumer Protection Act (S.2155) related to the Home Mortgage Disclosure Act (HMDA). The President signed S.2155 into law on May 24, 2018. Section 104 of S.2155 amends HMDA by adding partial exemptions to certain reporting requirements. The rule implements and clarifies the Section 104 provisions of S.2155.
S.2155 Partial Exemption
Section 104 of S.2155 exempts certain small-volume loan originators from the new HMDA reporting requirements. Financial institutions that originate fewer than 500 closed-end mortgage loans and 500 open-end lines of credit in each of the two preceding calendar years may revert to pre-January 2018 HMDA reporting requirements. The threshold must be met separately for both closed-end and open-end. This means:
- Reporting closed-end loans following pre-2018 rules;
- When originating fewer than 500 closed-end mortgage loans;
- Reporting open-end loans following pre-2018 rules;
- When originating fewer than 500 open-end mortgage loans;
- Exemption from HMDA reporting for HELOCs during 2018-2019 period; and,
- Limited HELOC reporting for post 2019 period.
This exemption does not apply to any bank that has received a “needs to improve” CRA rating during each of the last 2 most recent exams or a “substantial non-compliance” rating on its most recent exam.
The rule implements the partial exemption as discussed above. Whether a partial exemption applies to an institution’s lending activity for a particular calendar year depends on an institution’s origination activity in each of the preceding two years. For example, whether a partial exemption applies to closed-end loans for which final action is taken in 2019 depends on the number of closed-end loans
originated by the insured depository institution in 2017 and 2018.
The rule’s clarifications of the S.2155 partial exemption include:
- S.2155 does not define “closed-end mortgage loan” or “open-end line of credit.” The rule clarifies that the CFPB believes S.2155 intended those terms to only include those loans that would otherwise be reportable under HMDA. For example, “agricultural purpose loans,” as defined within Reg C, are not counted.
- If a financial institution qualifies for a partial exemption, S.2155 specifies that the requirements of HMDA section 304(b)(5) and (6) do not apply. The rule interprets those sections to include 26 specific data points. For a list of those data points, see the link to the rule at the end of this article.
- S.2155 does not require a universal loan identifier (ULI) for loans or applications that are partially exempt. However, loans and applications must be identifiable. The rule requires a non-universal loan identifier even for partially exempt loans that do not require a ULI. The non-universal loan identifier may be composed of up to 22 characters to identify the covered loan or application, which:
- May be letters, numerals, or a combination of letters and numerals;
- Must be unique within the insured depository institution; and
- Must not include any information that could be used to directly identify the applicant or borrower.
- As discussed above, an insured depository institution is not eligible for the S.2155 partial exemption if it has received a rating of “needs to improve record of meeting community credit needs” during each of its two most recent Community Reinvestment Act (CRA) examinations or a rating of “substantial noncompliance in meeting community credit needs” on its most recent CRA examination. The rule interprets this assessment to be made as of December 31 of the preceding calendar year.
Covered financial institutions will want to consider their use of the S.2155 partial exemption based upon CFPB’s clarifications within the rule. Operational considerations will also need to be made. For example, the rule permits optional reporting. Some covered financial institutions eligible for a partial exemption may decide to report, especially for data submission in 2019. As discussed above, whether a partial exemption applies is based on origination activity for the preceding two years. Some covered financial institutions may be unable to determine this just before data collection for the covered year. For example, as most institutions had already begun collection of 2018 data before S.2155 was signed, they may not have time to adjust their systems. As a result, some covered financial institutions may decide to optionally report in 2019, which the rule permits.
While S.2155 became law upon publication, CFPB’s implementation of its HMDA provisions through the rule provides additional clarity to financial institutions eligible for the partial exemption. WBA recommends that financial institution’s seeking to utilize the partial exemption review the rule in full. The rule is effective on September 7, 2018.
The rule may be found here: https://www.gpo.gov/fdsys/pkg/FR-2018-09-07/pdf/2018-19244.pdf
By, Ally Bates