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PCBB Banc Investment Daily February 19, 2016
Banc Investment Daily
February 19, 2016

Levittown and HMDA

Q: What do Bill O'Reilly, Sterling Morrison and the movie Born on the Fourth of July have in common? A: Levittown. Sterling Morrison, guitarist of the Velvet Underground, once lived there. TV host Bill O'Reilly was raised in a house close to Levittown. The 2 marine recruiters of Born on the Fourth of July come from a station there. Levittown is the name of 4 large housing developments and symbol of the postwar suburb. Dotted with small houses, these developments were built by Levitt & Sons in NY, NJ, PA and PR. They were designed for veterans returning from World War II in an assembly line manner so families could quickly settle into affordable homes.
In the banking world, in order to make sure home loans are also available to all in an assembly like fashion, regulators from time to time will look closely at practices to ensure discriminatory lending is not occurring in the industry.
That is one reason why the CFPB finalized a rule in October 2015 that expands the Home Mortgage Disclosure Act (HMDA) data set. Recall that HMDA was enacted by Congress in 1975 and requires certain financial institutions to collect, record, report, and disclose information about their mortgage lending activity. The goal of the new rule is to capture more information on consumer access to mortgages. This all comes from Dodd-Frank, where Congress directed the CFPB to update HMDA and have lenders report certain new information. The goal is to use the data to improve public understanding, identify emerging risks, and surface potential discriminatory lending practices.
The new rule captures new data points (for data collected from Jan 1, 2018, forward) that include: applicant or borrower age, credit score, automated underwriting system information, unique loan identifier, property value, application channel, points and fees, borrower-paid origination charges, discount points, lender credits, loan term, prepayment penalty, non-amortizing loan features, interest rate, and loan originator identifier as well as other data points. Of note, the rule adds a requirement to report how the institution collected the information about the applicant's or borrower's ethnicity, race, and sex (visual observation or surname) when an applicant chooses not to provide the information for an application.
The timeline for impacted banks is as follows: 2016 - no new regulatory requirements go into effect; 2017 - Jan 1 is the effective date for excluding low volume depository institutions from coverage; 2018 - Jan 1 is the effective date for most provisions related to institutional and transactional coverage, and data collection, recording, reporting, and disclosure; 2019 - Jan 1 is the effective date for changes to enforcement provisions and additional amendments to reporting provisions; and 2020 - Jan 1 is the effective date for quarterly reporting provisions.
The new rule applies to institutions subject to Regulation C in 2017. An institution would not have to do this if it does not meet all of the criteria under current Regulation C and it originates less than 25 home purchase loans (including refinancing home purchase loans) in both 2015 and 2016. Also, beginning in 2018, financial institutions are subject to Regulation C if they originated at least 25 covered closed-end mortgage loans in each of the two preceding years or at least 100 covered open-end lines of credit in each of the two preceding calendar years, and it meets other applicable coverage requirements.
It remains to be seen how this all works out over time, but suffice it to say bankers will be impacted. Consider a Wolters Kluwer survey on the subject that found the biggest concerns of bankers who responded were: 64% cited accurately capturing the new data fields; 42% said upgrading their systems; 39% said staff training; and 33% said time/cost to implement such a big change.