by Bob Fowlkes, Maynard Cooper & Gale
On May 24 President Trump signed into law the “Economic Growth, Regulatory Relief and Consumer Protection Act” (the “Act”). While the Act may ease the HMDA reporting burden on many banks, it may not be the panacea for which banks had hoped. Banks eligible for partial exemptions still must gather and report HMDA data points. Because a bank may not know how many loans it will originate, and thus qualify for any exemption, until the end of a calendar year, some banks may simply opt to report all data, even the exempt data points. On the other hand, if a bank knows it will report fewer than 500 closed-end loans and open-end lines of credit, however, the Act significantly reduces its reporting obligations. Additionally, it is possible that the Act’s look-back study, which is designed to assess the impact of these new amendments, will lead to more regulatory relief.
Background. The Home Mortgage Disclosure Act (“HMDA”) is a federal law that was enacted in 1975. HMDA requires covered “financial institutions” to report certain items of information concerning mortgage loan applications to their designated federal supervisory agencies. The law is intended to provide the public with information about the extent to which “financial institutions are serving the housing needs of their communities.” Additionally, Congress designed HMDA to aid in identification of “possible discriminatory lending patterns.”
Dodd-Frank. The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 transferred HMDA rulemaking authority from the Federal Reserve to the Bureau of Consumer Financial Protection (the “Bureau”). In October 2015, the Bureau promulgated a final rule amending Regulation C (the “October 2015 Amendments”) which, among other things, modified (i) the types of institutions and transactions subject to HMDA; (ii) the information that institutions must collect, record, and report; and (iii) the processes for reporting and disclosing data. Most of the amendments and new rules took effect on Jan. 1. Prior to the October 2015 Amendments, HMDA required the collection and reporting of 23 data points. The October 2015 Amendments, expanded this number to 48. Moreover, of the 23 pre-existing data points, many were modified.
Recent Amendments to HMDA. During his presidential campaign, Trump had promised to ease the regulatory burden on financial institutions and the passage of this Act is consistent with those promises. The Act provides regulatory relief for many small and regional banks in a variety of contexts. Section 104(a) of the Act amends HMDA. If a depository institution originates fewer than 500 closed-end mortgage loans in each of the two preceding calendar years or originated fewer than 500 open-end lines of credit in each of the two preceding calendar years it will have reduced HMDA reporting requirements, assuming the depository institution has an appropriate Consumer Reinvestment Act (“CRA’) rating.
Clarifying the May 2018 amendments. On August 31 the Bureau issued an interpretive and procedural rule (the “Interpretive and Procedural Rule”) to clarify the Act’s amendments to the new HMDA reporting obligations. The Interpretive and Procedural Rule clarified the following:
- the Act became effective on May 24;
- the new partial exemptions do not apply if the depository institution received a CRA rating of “needs to improve record of meeting community credit needs” during each of its two most recent examinations or a rating of “substantial noncompliance in meeting community credit needs” on its most recent CRA examination;
- partially exempt institutions are not required to report 26 data points specified in this rule. The Bureau has listed the effect of the Act’s partial exemptions in Table 1 of its interpretive and procedural rule;
- the Act’s partial exemptions operate independently of one another meaning, depending on its volumes, an institution could be exempt from reporting a full set of data points with respect to open-end lines of credit but not closed-end mortgage loans;
- partially exempt institutions have the option to report all data points covered by the partial exemption;
- partially exempt institutions have the option to report data covered by a partial exemption provided that the institution includes all other data fields that the data point comprises. For example, if a bank reports a data field that is part of the property address data point (such as street address), it must report all other data fields which are part of the property address data point (including zip code, city and State);
- the terms “closed-end mortgage loan” and “open-end line of credit” include only loans and lines of credit that are otherwise reportable under HMDA;
- partially exempt institutions are required to report a non-universal loan identifier if they choose not to report a universal loan identifier (“ULI”).
According to the Bureau, approximately 3,300 institutions will receive relief under the Act. More information on the Bureau’s Interpretive and Procedural Rule may be found on the website listed above. The Bureau maintains that banks and credit unions should benefit from these clarifying rules because it will “ease review, understanding, and compliance with section 104(a) of the Act.”
Just to reiterate. While the Act may ease the HMDA reporting burden on many banks, it may not be the blanket overhaul banks wanted. Banks eligible for partial exemptions still must gather and report HMDA data points. Because a bank may not know until the end of a calendar year how many loans it will originate, and therefore whether it will qualify for an exemption, some banks may opt to report all data, even the exempt data points. On the other hand, however, the Act significantly reduces its reporting obligations, if a bank knows it will report fewer than 500 closed-end loans and open-end lines of credit. The Act’s look-back study, which is designed to assess the impact of these new amendments, may also lead to more regulatory relief.
