HMDA: Haven or Havoc

Cindy Prince, Presenter

Assisted by Rachelle Dekker and Matt GobleDecember 5, 6 & 7, 2017

1. Annual expectations

2. Two proposals and a new final rule

3. Key definitions

4. Reportable and Excluded Transactions

5. Categories of data – 54 Data Elements

o How we organized the data

o Explanation of each data element

Recap – Day One 2

1. Reporting requirements

2. Institutional coverage

3. What these changes mean to you

4. Data collection requirements

5. Action plan

6. Ethnicity, Race & Sex

o Rules for collecting and reporting

o Transition rules

Agenda – Day Two 3

2017: Reporting Requirements 4

Beginning January 1, 2018, all HMDA data collected in or after 2017 will be filed with CFPB

Data must be formatted in pipe delimited text file (.txt)

FFIEC free software no longer available for inputting

CFPB’s loan/application register formatting tool Filers with small volumes of reported loans that do not use vendor or other software

may use to prepare HMDA data for submission

Beginning with 2017 data, filers will submit HMDA data using CFPB’s HMDA Platform

Need latest version of Google Chrome™ browser or Mozilla® Firefox®, Internet Explorer® 11, Microsoft Edge,™ or other modern browser

2017: Reporting Requirements 5

Edits must now be addressed prior to filing HMDA data with CFPB in order to complete submission process

The edit report will be web-based:

Edit reports will NOT be e-mailed to filers in PDF format Viewed and downloaded from HMDA Platform Responses to edits will not be faxed or e-mailed to CFPB. HMDA Platform will guide

filers through process of addressing edits

As part of submission process, an authorized representative of institution with knowledge of data submitted shall certify to accuracy and completeness of data submitted. Filers will not fax or e-mail signed certification

Technical questions about reporting HMDA data collected in or after 2017 should be directed to hmdahelp@cfpb.gov.

2017: Institutional Coverage 6

Depository institution

$44 million in assets (adjusted annually)

Home or branch in MSA

Federally insured or regulated

Originated at least (25) home purchase loans in each of prior two calendar years (2015/2016) – NEW!

Including refinancing's of home purchase loans

Includes consumer and commercial

2017: Excluded Transactions 7

Excluded data. A financial institution shall not report:

(1) Loans originated or purchased by the financial institution acting in a fiduciary capacity (such as trustee);

(2) Loans on unimproved land;

(3) Temporary financing (such as bridge or construction loans);

(4) The purchase of an interest in a pool of loans (such as mortgage-participation certificates, mortgage-backed securities, or real estate mortgage investment conduits);

(5) The purchase solely of the right to service loans; or

(6) Loans acquired as part of a merger or acquisition, or as part of the acquisition of all of the assets and liabilities of a branch office as defined in Sec. 1003.2.

2018: Institutional Coverage 8

All Financial InstitutionsOriginated at least (25) closed-end mortgage loans in each of the two

preceding calendar years- OR -

Originated at least 500 covered open-end lines of credit in each of the two preceding calendar years

Non-DepositoryHome or branch office in MSA

Depository Institution$44 million in assets (adjusted annually)

Home or branch in MSAOriginated at least (1) home purchase or refinance

secured by a first lien on a 1-4 dwellingFederally insured or regulated

What These Changes Mean To You 9

Costs

Changes to your software systems

Changes to policy and procedures

Training

Time

Data collection

Data verification/scrub

Data Collection 10

Create a HMDA DataSource Worksheet

What are your actual source documents for each data element that must be captured for HMDA reporting?

For example: Residential mortgage loan, you use the 1003; GMI information is located on page 4 of 5

Next, add a column to indicate what source documents have the correct (and consistent) information

Complete this for each type of application

Residential Mortgage Loans: 1003, GMI, Page 4 of 5

Commercial loans: separate GMI form

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Data Collection 12

Create a HMDA Worksheet*

List each data field required to be collected

Record the information to be inputted in the exact form it is to be inputted (e.g. Purpose of Loan – 1; Action Taken – 3; Reasons for Denial – 3)

Attach any copies from FFIEC Calculator or FFIEC Geocoding (or other vendor)

*For those of you who are customers of Temenos Compliance Advisory Services, we have a HMDA Worksheet Quick Compliance Guide available on the website.

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13

Data Collection 14

Benefits

Inputting

Accountability

Minimize errors

Time (Less time digging in files)

Consistency

Examiners

Training

Data Collection 15

Key factors to address in procedures

Who collects the data?

When is it collected?

Who inputs the data?

Is there a cross check/dual control?

Where is it stored?

How will it be captured electronically?

Action Plan – It is never too late! 16

Identify all lines of business that will be impacted

Determine whether you have sufficient staff

Establish a HMDA Implementation Committee

Include members from each line of business, including upper management, and IT

Look at what you still need to do to be ready to comply by January 1, 2018, and develop a plan to get you there

Assign responsibility for each remaining step in the process

Meet regularly to discuss progress

Check the status of your operating systems

Are they ready? If not, what are they missing?

Ask specifics, such as deadline dates

Will there be an additional cost to your institution?

Action Plan 17

TRAINING!

One session is NOT enough

Identify who still needs to be trained

Don’t forget the Board of Directors

Develop training materials specific for each position (i.e., collection, input, etc.)

Test staff to identify any areas of confusion and/or weaknesses. Do not wait until January 1 to find out someone is not clear on the new rules

Update policy and procedures

Nail down any procedures that affect how you will collect and report certain elements

Update your overall Compliance Risk Assessment

Re-evaluate risk rating as changes are extensive and errors could cause not only HMDA violations but potential fair-lending violations

Action Plan 18

Once data collection begins, conduct self-testing

Verify accuracy of data collected BEFORE reporting

Audit data collected and data input at least quarterly to test processes for any weaknesses

Remember all institutions must maintain internal LAR with complete and accurate HMDA data within 30 days of each calendar quarter close

Conduct assessment of lending practices

Know what the data shows

Fair Lending

UDAAP

How will you address any problems indicated?

Action Plan 19

For those who are customers of Temenos Advisory Services, we have an Action Plan Checklist Quick Compliance Guide as well as an Action Plan Example Quick Compliance Guide available on the website.

“Demographics” 20

The new rules for collecting Ethnicity, Race and Sex

Ethnicity, Race and Sex – What Is new? 21

New requirement to report how institution collected applicant’s or borrower’s ethnicity, race and sex

Whether or not it collected on basis of visual observation or surname

Must permit applicants to self-identify their ethnicity and race using disaggregated ethnic and racial subcategories

Institutions not permitted to use disaggregated subcategories when identifying applicant’s ethnicity and race based on visual observation or surname

New Appendix B – Form and Instructions

Appe

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B: C

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What Are “Disaggregated Categories?” 23

Ethnicity

Hispanic or Latino

Mexican

Puerto Rican

Cuban

Other Hispanic or Latino ____________

What Are “Disaggregated SubCategories?” 24

Race

American Indian or Alaska Native

Enrolled or principal tribe ___________

Asian

Asian Indian

Chinese

Filipino

Japanese

Korean

Vietnamese

Other Asian____________

What Are “Disaggregated SubCategories?” 25

Native Hawaiian or Other Pacific Islander Native Hawaiian Guamanian or Chamorro Samoan Other Pacific Islander____________

Black or African American and White are NOT

“Disaggregated Subcategories

Applicant Information: Ethnicity 26

Applicant Information: Ethnicity 27

Must offer option of selecting more than one ethnicity and must permit applicant to self-identify using both aggregate categories (Hispanic or Not Hispanic) and disaggregated subcategories (Mexican, Puerto Rican, Cuban, Other Hispanic or Latino)

Applicant may select a subcategory without selecting its aggregate

Must offer option of selecting more than one ethnicity and must report every category selected.

If more than five selected, institution reports only up to five.

If Hispanic or Latino selected, all four subcategories may be selected:

Mexican

Puerto Rican

Cuban

Other Hispanic or Latino

Applicant Information: Ethnicity 28

If Other Hispanic or Latino selected, ethnicity not listed in standard subcategories may be provided

Report both Other Hispanic or Latino and additional information provided by applicant

Applicant is permitted to complete the free form Other field without specifically selecting Other Hispanic or Latino. Institution may, but is not required to, report Other Hispanic or Latino

Institution cannot use the subcategories when identifying ethnicity based on visual observation or surname

Must only use Hispanic or Latino or Not Hispanic or Latino

Applicant Information: Ethnicity (EXAMPLES) 29

Example 1: Applicant selects both Hispanic or Latino and Not Hispanic or Latino as well as all four subcategories (Mexican, Puerto Rican, Cuban and Other Hispanic or Latino). This is a total of six and Institution can only report five. Institution would report Hispanic or Latino, Not Hispanic or Latino, and Institution’s choice of three of the remaining four subaggregatecategories (for example, Mexican, Puerto Rican and Cuban)

Example 2: Applicant writes in Dominican. Institution should report Dominican and may also (but are not required to) report Other Hispanic or Latino. If Institution does so, this would count as one selection

Example 3: Applicant selects only Mexican. Institution should report only Mexican and should not also report Hispanic or Latino

Example 4: Applicant selects Other Hispanic or Latino and writes in Colombian. Institution must report both Other Hispanic or Latino and Colombian. Keep in mind that these two are combined and counted as one selection.

Applicant Information: Race 30

Applicant Information: Race 31

Must offer option of selecting more than one race and must permit applicant to self-identify using both aggregate categories (American Indian or Alaska Native, Asian, Black or African American, Native Hawaiian or Other Pacific Islander or White) and disaggregated subcategories (Asian Indian, Chinese, Filipino, Japanese, Korean, Vietnamese, Other Asian, Native Hawaiian, Guamanian or Chamorro, Samoan, or Other Pacific Islander)

Must report every aggregate category and subcategory selected, up to total of five. Must start with aggregate categories selected first (American Indian or Alaska Native, Asian, Black or African American, Native Hawaiian or Other Pacific Islander or White) and then report subcategories selected until a total of five is reached

Applicant may select a subcategory without selecting its aggregate category

If Other Asian or Other Pacific Islander is selected, applicant must be permitted to provide race subcategory not provided on collection form

Report both Other Asian or Other Pacific Islander and additional information provided by applicant.

Applicant Information: Race 32

Institution may report American Indian or Alaska Native if the applicant provides only a particular American Indian or Alaska Native enrolled or principal tribe in the free-form field

Applicant is permitted to complete the free form Other field without specifically selecting Other Asian or Other Pacific Islander. Institution may, but is not required to, report Other Asian or Other Pacific Islander in addition to reporting the particular Asian race or Pacific Islander race provided by the applicant.

Cannot use the subcategories when identifying race based on visual observation or surname

Must use only the five aggregate categories

Applicant Information: Race (Examples) 33

Example 1: Applicant only selects Asian. Institution would report Asian for the race and nothing else because only the applicant may self-identify as being of a particular subcategory (Asian Indian, Chinese, Filipino, Japanese, Korean, Vietnamese, Other Asian, Native Hawaiian, Guamanian or Chamorro, Samoan, and Other Pacific islander or American Indian or Alaska Native enrolled or principal tribe)

Example 2: Applicant selects all five aggregate race categories (American Indian or Alaska Native, Asian, Black or African American, Native Hawaiian or Other Pacific Islander and White) as well as three subcategories (Chinese, Korean, and Samoan). This is a total of eight and Institution can only report 5. Institution would only report the five aggregate race

Example 3: Applicant selects three aggregate race categories (Asian, Native Hawaiian or Other Pacific Islander and White) as well as three subcategories (Chinese, Korean, and Samoan). Institution would report the three aggregate race categories and Institution’s choice of two of the three subcategories (for example, Chinese and Samoan) for a total of five

Applicant Information: Race (Examples) 34

Example 4: Applicant writes in Hmong. Institution should report Hmong and may also (but are not required to) report Other Asian. If Institution does so, this would count as one selection

Example 5: Applicant selects Other Asian and writes in Japanese. Institution must report both Other Asian and Japanese. Keep in mind that these two are combined and counted as one selection

Example 6: Applicant writes in Navajo. Institution must report Navajo and may (but is not required) report American Indian or Alaska Native.

Example 7: Applicant selects American Indian or Alaska Native and writes in Cherokee. Institution must report both American Indian or Alaska Native and Cherokee. Keep in mind that these two are combined and counted as one selection

Applicant Information: Sex 35

Applicant Information: Sex 36

Applicant can now choose both genders

Differences from Regulation B in collection practices

Applicant Information: Ethnicity, Race and Sex 37

Must ask for ethnicity, race and gender information regardless of how application is taken

Cannot require applicant to provide

If application taken in person and ethnicity, race and gender not provided by applicant, must indicate such and then collect on the basis of visual observation or surname

Must inform applicant that they are doing so

Electronic application with video component must be treated as “in person”

Without video, treated as “accepted by mail”

Report non-natural persons as "Not Applicable“ (i.e. a corporation, partnership or trust)

For example, for a transaction involving a trust, where the trust is the applicant, you report “Not Applicable” for the applicant’s ethnicity, race and gender. On the other hand, if the applicant is a natural person and is the beneficiary of the trust, you must report the ethnicity, race and gender.

Applicant Information: Ethnicity, Race and Sex 38

May request ethnicity, race and gender when meeting with applicant in person if applicant begins application by mail, internet, or telephone, but does not provide the requested information and does not select “I do not wish to provide this information”

If applicant does not provide requested information during in-person meeting, information must be collected on basis of visual observation or surname

If meeting occurs after application process is complete (e.g., at loan closing or account opening), there is no requirement to obtain applicant’s ethnicity, race and gender and institution may report as "Not Applicable"

If a loan or application includes a guarantor, ethnicity, race and gender are not reported for the guarantor

If no co-applicants, report that there are no co-applicants. If more than one co-applicant, provide ethnicity, race and sex only for the first co-applicant listed on collection form. A co-applicant may provide ethnicity, race and sex on behalf of an absent co-applicant. If information not provided for absent co-applicant, must report “information not provided by applicant in mail, internet or telephone applicant” for that absent co-applicant

Optional reporting for purchased loans

If choosing not to collect, report "Not Applicable"

Consider… 39

Fair Lending Risk

Ethnicity, Race and Sex

Regulation B Amendments 40

Allows non-HMDA reporters subject to Reg. B to adopt voluntarily new practices for collecting applicant information

Collect information about ethnicity, race, and sex in certain instances when the creditor is not required to report that information

Submitted HMDA data in any of the past 5 years, but is not currently a "financial institution" under HMDA would be permitted to collect information for HMDA covered loans

Transition to the 2016 version of the URLA

Collect applicant’s information using either aggregate ethnicity and race categories or disaggregated ethnicity and race categories and subcategories on an application-by-application basis

Clarifies that a creditor is permitted, but not required, to collect applicant demographic information from a second or additional co-applicant

Regulation B Amendments 41

Removes the 2004 version of the URLA as a model form

Provides two alternative data collection model forms for the purpose of collecting data regarding race and ethnicity

Form for collecting aggregate applicant race and ethnicity information

Cross-reference to Regulation C appendix model form for collecting disaggregated applicant race and ethnicity information

Transition Rule 42

Based on when application is received; NOT when final action is taken

If application is received prior to January 1, 2018:

May collect based on current rules (GMI) using the current categories for ethnicity, race, and sec and not allowing the applicant to self-identify using disaggregate categories; OR

May collect based on new rules (Demographics) using the aggregate and disaggregate ethnicity and race categories and subcategories and allowing the applicant to self-identify

If application is received on or after January 1, 2018, must collect based on new rules using disaggregate ethnicity and race categories and subcategories

Report based on ethnicity, race and sex collected; whether under current or new rule

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Questions?

Thank you!