Tag Archive for: HMDA

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Executive Letter: Agency Guidance Regarding Lower Closed-End Mortgage Loan HMDA Reporting Threshold

Rose Oswald PoelsBy Rose Oswald Poels

New guidance has been issued from both the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC) regarding the recently lowered reporting threshold for closed-end mortgage loans under the Home Mortgage Disclosure Act (HMDA), Regulation C. The reduction of the reporting threshold was swiftly imposed, and I believe the new agency guidance will be helpful for members impacted by the change.

As previously reported in my November 1 and December 29 Executive Letters, the Bureau of Consumer Financial Protection (CFPB) lowered the reporting threshold due to an action by the United States District Court for the District of Columbia, which vacated a 2020 HMDA-related rule that had increased the loan volume reporting threshold for closed-end mortgage loans. As a result of the court’s order, the threshold for reporting data about closed-end mortgage loans was lowered to 25 — a threshold established by a 2015 HMDA-related rule. A technical amendment was made to the Code of Federal Regulations to reflect the lower reporting threshold near the end of 2022.

Just this past week, both OCC and FDIC issued guidance regarding the lower reporting threshold. I have outlined each agency’s guidance below.

OCC
In its release (Bulletin 2023-5), OCC stated that banks that 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, may need to make adjustments to policies and procedures to comply with reporting obligations.

OCC stated it recognizes the changes may require time to implement. OCC also stated that it does not intend to assess penalties for failures to report closed-end mortgage loan data on reportable transactions conducted in 2022, 2021, or 2020 for banks affected by the change that meet Regulation C’s other coverage requirements. OCC examinations conducted in affected banks regarding HMDA reportable transactions from 2022, 2021, or 2020 will be diagnostic to help banks identify compliance weaknesses. OCC stated that the collection and submission of 2023 HMDA data will provide affected banks with an opportunity to identify gaps in and make improvements to their HMDA compliance management systems.

FDIC
In its release (Financial Institutions Letter 06-2023), FDIC outlined its supervisory approach to the HMDA reporting changes to closed-end mortgage loans. FDIC also stated recognition that banks affected by the threshold change need time to implement or adjust policies, procedures, systems, and operations to come into compliance with reporting obligations. Accordingly, for closed-end mortgage loan data, FDIC plans to implement a supervisory approach consistent with CFPB’s approach.

As such, for FDIC-supervised banks that (1) are subject to Regulation C’s other coverage requirements, and (2) 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 of the two preceding calendar years, FDIC does not intend to initiate enforcement actions or cite HMDA violations for failures to report closed-end mortgage loan data for 2022, 2021, or 2020. Any FDIC-supervised bank may elect to report data voluntarily for those years; however, FDIC stated it does not expect those banks to collect and report data retroactively for closed-end mortgage loans covered by the court’s order vacating CFPB’s 2020 HMDA-related rule.

FDIC has clarified that banks affected by the court’s order, and that meet the reporting threshold of 25 closed-end mortgage loans in each of the two proceeding calendar years as of 2023, should start collecting data in 2023 and reporting data in 2024.

As is always the case, when working with your regulatory agencies, I recommend frank conversations with your examiner in charge (EIC) regarding agency expectations and findings. While being respectful, members should not be shy about questioning the EIC about examiners’ rationale or interpretations and to ask for regulatory citations for the bank to then separately, further research and confirm whether examiner instruction or finding is correct.

If you have questions regarding the recently issued guidance, about HMDA reporting requirements, or other compliance-related questions, be sure to reach out to the WBA Legal team.

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Executive Letter: Technical Amendment Lowers Closed-End Mortgage Loan HMDA Reporting Threshold

Rose Oswald PoelsBy 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.

Summary

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.

Background

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.

View the Technical Amendments View the Blog Post
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Tis the Season – To prepare your HMDA LAR

If you are like most banks running a large mortgage pipeline over the last ten months, you have had very little time to catch your breath before accepting that next application. And like most banks, your back-office support staff have had to adjust their processes and resources just to keep up the rate locks, TRID disclosures, and timely mortgage closing, all during a pandemic. But what about that pesky HMDA LAR we have all come to love and adore? It’s the last regulation down the mortgage production trough and comes in a close second to post-closing internal quality control that is required during the same time period. We really don’t have time or staff for either.

But don’t get yourself on the naughty list this close to the holidays. Unless your bank is considered a large institution, compliance with every aspect of updating your HMDA within thirty days of each calendar quarter is still in play. And even for large institutions, the only regulatory relief they saw due to COVID-19 is that their regulator would not cite it as a violation if they did not file their quarterly LAR timely. How many banks, large and small, can proudly raise their hand and say they nailed it? Not as many as you would think based on my observations.

For those of you who are required to file a HMDA LAR, we all know it was made much more difficult once the extra sets of data points were introduced, and accounting for up to five applicants on one mortgage has made your HMDA LAR as long as Santa’s list, making it almost impossible to keep it up-to-date. And while the adoption to automate HMDA systems has made reporting more efficient, we still need a few extra elves to edit, review and if necessary, scrub the LAR before it can be wrapped up with a pretty bow. Without further regulatory relief or extension of filing your 2020 HMDA LAR, bank management should consider now how to reallocate staff and resources as we head into the holiday season. Getting your HMDA LAR’s caught up in time for 2021 filing may just be a Christmas miracle.

For those banks who have seen their HMDA LAR grow three times it’s normal size, this is not necessarily a bad thing. Remember, your bank’s HMDA LAR tells a story. Not one of a baby born in a manger, but one of hundreds of people being homeowners. And as bankers, we helped those wishes come true.

So, if your bank lacks the necessary resources, or elves, to review your 2020 HMDA LAR before submission, don’t fret, ShareFI is here to help. Please contact Jeff Schmid, Director of Compliance and Management Services via email to learn how we can help your bank check this list twice.

Schmid, CRCM, CERP is director of compliance and management services at FIPCO. He can be reached via email or 608-441-1220. 

By, Eric Skrum

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