The Quick Read:
- HMDA (Home Mortgage Disclosure Act) requires data to be submitted by lenders. Data requirements were expanded after the financial crisis.
- New HMDA Exemptions went into effect in May 2018 to ease the burden on smaller institutions who lack the resources and capacity to satisfy all data requirements.
- Exemptions limit the data pool and may prevent banks from knowing important information.
- Exemptions still require full completion of the report, substituting exemption codes for values.
- RegTech industry professionals may not be familiar with new protocols for exemptions.
- RiskExec simplifies the exemption process from data input to submission.
What Is S.2155?
S.2155 is the Economic Growth, Regulatory Relief and Consumer Protection Act (GRIPPA, “Act”), signed into effect by President Trump in May 2018. The Act simplified the HMDA filing process for some credit unions and community financial institutions by exempting them from the 2015 HMDA Rule, which nearly doubled the number of data points required. While nearly all financial institutions experienced some difficulty in preparing for compliance with this expansion, the burden was particularly difficult for some small volume originators, whose compliance budgets and resources are already strained making it even more difficult to compete in an increasingly competitive market.
Although the recent Act promised to make the necessary data collection more manageable for small lenders, it lacked clear instructions on how qualified institutions could take advantage of the opportunity. In August 2018, the Bureau issued a rule to clarify what the Act meant and released an updated Filing Instructions Guide detailing how exempted institutions could implement the changes. Under the S.2155 exemption, the affected financial institutions can now omit portions of the 2015 data requirements.
Old Rules, Same Format
While small lenders are exempt from the new rule, they must still submit the final file in the latest format, which requires a 110-field export. Qualified lenders have the option to include codes, like 1111, and values, like “exempt”, to indicate they are exempt from providing certain information.
An institution also has the option to file a partial exemption, disclosing some of the newly required information but not all. Institutions can voluntarily submit expanded information if they choose, but if they decide to exercise exemption from a field, all data points related to that field must be exempt. For example, if a lender decides not to submit a credit score, then exemption codes must be submitted for all fields relating to credit score.
The Double-Sided Coin
For regulators, collecting expanded data helps to minimize false positives in their comparative analyses. Analyzing regression on a small institution at an individual level may not yield much insight, but combining the data from many small institutions, or removing it altogether, can significantly affect the overall results.
As of the HMDA 2018 Rule, some data is available to the public, which community action groups may use to make claims or accusations about a financial institution’s lending practices. Many of the expanded data points, like credit scores, can help justify an institution’s actions. Community action groups, as well as regulators, can make better determinations about fair lending practices if they have access to this expanded data. Institutions filing as exempt may be subject to more scrutiny and red-flag assumptions by both.
Even non-exempt lenders will feel the effects. Come submission time, a chunk of valuable information about the overall population of loans will be missing, leaving larger banks with no indication of smaller banking activities that could have an effect on their business.
Finally, regulators have stated they won’t pursue enforcement for data integrity. However, not doing well on a data integrity exam makes it easy for regulators to interpret that as a problem with the institution’s compliance management system, which opens the door for additional exams, expanded reviews, and liabilities in other areas. The most recent release of exam procedures calls out certain fields that examiners will be focusing on in the submission period to come to help institutions prepare.
Is Your Institution Exempt?
If you are a small volume originator, meaning your institution produces fewer than 500 mortgage originations or 500 open-end lines of credit for each preceding year, you are eligible to utilize the exemption values for some of the expanded HMDA data points.
If your institution has received a “needs to improve” CRA rating during each of the last two most recent exams or a “substantial non-compliance” rating on the one most recent exam you must still comply with the additional HMDA disclosures.
The exemption of some community banks and credit unions from the expanded HMDA reporting will require some rewriting of the HMDA reporting expansion regulations to make sure that they harmonize with the statutory changes, reports the ABA in Section 104 of their Implementation Notes.
The new exemption has gone into effect for this filing season. HMDA data submission is due March 1, 2019.
Whether you’re fully or partially exempt, submit exempt. You will still need to review your own data, so make sure your HMDA vendor allows you to do both.