Proposed changes to the Home Mortgage Disclosure Act (HMDA) that would increase reporting exemptions on loan volume and other statistics present savings in cost and manpower hours for thousands of financial institutions. In an article for DSNews, Guidehouse’s Vincent Urbancic provides his insights on the HMDA reporting changes.
While everyone benefits from streamlined bureaucracy, this will be the third threshold change limiting the number of reporting institutions since the implementation of the 2015 HMDA Rule.
With continuous watering down of these regulations, banks run the risk of unintentionally impeding the Community Reinvestment Act (CRA). We stand to lose sight of the core mission of HMDA: To identify and address discrimination and ensure that economic incentives are focused on where they are most needed. Detailed data on home lending organized by census tract over the past 30 years has made these goals attainable. If we do not proceed cautiously, HMDA itself may become ineffective in its mandate, as the trickle of data it produces would be inconsequential.
Under the rule change proposed on May 2 by the Consumer Financial Protection Bureau (CFPB), now up for public comment, coverage thresholds and partial exemptions would be affected. For coverage thresholds the CFPB is proposing the following:
As for partial exemptions, the rule includes amendments to the data compilation requirements and addresses interpretive issues relating to partial exceptions such as reporting after a merger or acquisition.
Under the current landscape of HMDA reporting, approximately 4,960 financial institutions are required to report closed-end mortgages and applications. Of those, 4,263 are depository institutions and approximately 697 are nondepository institutions.
Of those required to report, approximately 3,300 or 67% are partially exempt, and of 333 financial institutions are required to report open-end lines of credit of which none are partially exempt.
It’s important to consider the implications of the proposed threshold change.
If the reporting threshold for closed-end changes from 25 to 50, approximately 745 depository institutions — or 17% — would be relieved of HMDA reporting requirements. In addition, approximately 300 out of an estimated 74,000 total census tracts would lose at least 20% of HMDA reportable data.
Further, if the reporting threshold for closed-end loans changes from 25 to 100, approximately 1,682 depository institutions — or 39% — would be relieved of HMDA reporting requirements. In the end, around 1,100 out of an estimated 74,000 total census tracts would lose at least 20% of HMDA reportable data.
Although these changes have a small impact on the total number of records being reported, continuing to increase the reporting thresholds could have implications on the usefulness and reliability of HMDA, such as:
Deregulation of strict measures imposed after the 2008 financial crisis has helped banks and their customers boost the economy and increase confidence. But banks themselves should also recognize the benefit of continued reporting of HMDA statistics for the common good and the overall economy.
This article was also featured on MReport entitled The Potential Pitfalls of HMDA Deregulation.