HMDA PARTIAL EXEMPTION

You know the old adage: Don’t look a gift horse in the mouth!  While it would have been ideal to have received the partial exemption much earlier this year, we can still save some money on migraine meds in 2018.  Emanating from the May 24, 2018 signing of the regulatory relief bill known as “Economic Growth, Regulatory Relief, and Consumer Protection Act” into law, Bureau issued its Interpretive and Procedural Rule on August 31, 2018.  It sets a new threshold for partial exemptions from reporting certain fields.  It also made the effective date immediate rather than requiring us to wait until they get through the standard protocols of issuing a preliminary rule, setting a comment period and then issuing a final rule to amend Regulation C.  That would have essentially negated any benefit to financial institutions looking for some relief from the expansive HMDA reporting requirements in 2018.  

The rule increased the threshold for reporting certain information about closed-end dwelling secured loans from 25 to 500.  So now, if you have originated fewer than 500 dwelling-secured closed-end mortgages in each of the previous two calendar years, you can take advantage of the partial exemption for reporting closed-end HMDA reportable mortgages.  It is important to understand that the new threshold did not alter the criteria for determining whether a financial institution is a HMDA reporter.  It merely provides some relief for HMDA reporters who would be considered “small filers” because they originated fewer than 500 closed-end dwelling-secured loans.  Also note that the open-end lines of credit threshold is unchanged and unaffected by the partial exemption.  Open-end lines of credit, if you originated fewer than 500, are still entirely exempt from mandatory reporting. Remember though, that the threshold of 500 open-end lines of credit for the complete regulatory exclusion is temporary.  It reverts to 100 open-end lines of credit beginning January 1, 2020 as it stands now.

To determine whether you meet the small filer threshold of 500 closed-end secured loans, the standard exemptions described in §1003.3(c) are still in play as they have always been.   Only closed-end loans that are otherwise HMDA reportable count toward the thresholds for the partial exemption.   

The partial exemption is effectively retroactive to January 1, 2018, though the rule refers to the May 24, 2018 demarcation for the Act.  The rule does not require institutions to go to all the trouble to strip out the partially exempt data already collected from January 1st through May 24th.  There are exemption codes that you will use for the partially exempt fields.  They are “1111” or “Exempt” and are specifically assigned to specific fields – they’re not interchangeable.  The Bureau issued an updated Filing Information Guide that incorporates the new partial exemption and the codes for each field you elect not to report.  

There are seven data points that require reporting of all related data fields if you opt to voluntarily report those data points.  They are: property address, credit score, reason for denial, total loan costs or total points and fees, non-amortizing features, application channel and automated underwriting system.  For example, if you elect to report total loan costs, you would also have to report origination charges, discount points and lender credits.

Exempting certain data points from the HMDA LAR does not mean you can’t (or shouldn’t) continue to collect some of that information.  Certain key data will support your internal analysis and evaluation of fair lending risk.  You may want to continue to track key eligibility and pricing criteria, such as DTI, CLTV, rate spread, and FICO in your loan operating systems so that you can generate reports that will allow you to perform comparative file testing more efficiently and effectively.  The trick may be getting the LOS to retain that data and still generate the exemption codes for those data points in your HMDA LAR.

Regardless of the partial exemption for certain data points, all data reported on the HMDA LAR are still reported using the current HMDA definitions and formats.  The partial exemption did not change required data field definitions or how and under what circumstances such data is reported.  

You may have noticed that the Universal Loan Identifier (ULI) is one of the partially exempted fields.  The interpretive and procedural rule provides for an optional non-universal loan identifier, or NULI.  It would not have to contain the LEI or a two-character check digit.  It is limited to 22 alpha-numeric characters in length and still cannot contain any identifying information such as an applicant’s SSN.  Because most institutions have set up systems and programming to create the ULI, moving to a NULI may be more troublesome than maintaining the current ULI protocol.  

In late 2017, the supervisory agencies stated that they will take a largely diagnostic approach to HMDA data integrity exams in 2019.  Nevertheless, institutions that are eligible for the partial exemption should seriously consider taking advantage of the reporting reprieve.  Again, you can, for internal purposes, continue to collect information that is exempted but still opt not report it.

by Sterling Compliance

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