Starting in early 2019, lenders will have to disclose much more detailed information to regulators about mortgage loans.
The Consumer Financial Protection Bureau (CFBP) on Thursday finalized an 800-page rule that expands the reporting requirements under the Home Mortgage Disclosure Act (HMDA). The new rule will add several more data points that will need to be gathered and disclosed to regulators, including far more granular information about the individual loans.
HMDA was passed in 1975, requiring banks and lenders to report loan information to regulators. The law was intended to help the government monitor how communities are being served, including ferreting out any predatory or discriminatory lending practices. In a news release, the CFPB said the current reporting requirements are out of date and don’t include data on certain loan products that could fuel boom-and-bust cycles. Some of the changes were mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act.
With a few exceptions, lenders will have to report all home loans secured by buildings, including reverse mortgages and lines of credit. The data points will include things such as the applicant’s debt-to-income ratio, the interest rate of the loan, and the discount points charged for the loan, the CFPB said.
The CFPB has not yet worked out what information will be disclosed to the public, or scrubbed for privacy. The new rule potentially means that consumers and competitors will be able to gather loan-level pricing and demographic information originated by individual mortgage brokers and lenders, analysts say.
“There is the potential here to track individual types of companies, whether it is a bank, credit union, mortgage broker [or] lender in terms of the price of loans connected to those entities,” said Colgate Selden, an attorney with Alston & Bird and a former rule maker with the CFPB.
“You can compare different markets, and then you can dig down and compare similarly-situated borrowers from one lender to the next. On top of that, it looks like you have to identify the original mortgage originator that is primarily responsible for originating the loan. So, you can tie pricing to individuals.”
Gary Acosta, chief executive officer of the National Association of Hispanic Real Estate Professionals, said the higher-level of detail should help the government flag questionable lending practices.
“If we see that minorities are paying higher interest rates, paying more fees than other segments of the population, obviously that is an issue, and that is an issue that can be addressed through this,” Acosta said. “Also from the CFPB’s perspective, they are going to be able to see trends.”
Acosta, who sits on a CFPB advisor panel, said the bureau can now use the data sets more effectively to determine if their rules and policies are working, or hurting consumers and certain populations.
“The banking industry is always going to be a little bit leery about anything that is going to create more work and, theoretically, more expense,” Acosta said. “It is going to be helpful to the industry as well to see what gaps there are out there, what trends are out there.”
Although the changes were supported by consumer-advocacy groups, the banking industry has mixed opinions. The bureau’s final rules eliminated certain reporting requirements that it initially proposed in July 2014. For example, the final rule doesn’t require reporting on most commercial properties. Also, smaller banks and institutions that originate few mortgage loans won’t have to report.
The Mortgage Bankers Association and American Bankers Association both expressed concerns about protecting privacy and data security. Other trade groups also said the new requirements would create significant compliance and reporting hurdles.
The final rule will take effect on Jan. 1, 2018, but companies will not have to report the data until March 2019.