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QuestSoft And OpenClose To Hold Webinar On The New CFPB HMDA Rules

OpenClose, a multi-channel loan origination system (LOS) provider, and QuestSoft, a provider of automated mortgage compliance software, announced that they will host a joint webinar covering the new CFPB HMDA regulations, how they will impact organizations, and outline specific plans to make compliance with the new HMDA rules the most efficient and time-saving process in the mortgage industry. The webinar will be held on June 21, 2017 from 1:00 p.m. – 2:15 p.m. EDT.

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Entitled “The New CFPB HMDA Rules, What You Need to Know,” this webinar will provide insight on not just what the new rules are, but what organizations will need to prepare for well in advance of the January 2018 implementation deadline. The companies say that while the deadline may seem a long way off, there are business-critical functions that should considered now or run the risk of being caught off-guard.

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Key topics that will be covered in the webinar: 

  • The inside day to day nuances behind the new regulations.
  • Above and beyond: practical, actionable information will be provided to attendees, not a legal review as is typical with most HMDA webinars.
  • New loan types required with HMDA and how OpenClose and QuestSoft are answering the call.
  • Recommendations for improving data integrity across the enterprise.
  • A timeline of the changes and companies need to prepare for in advance.
  • The new public face of HMDA: implications for Fair Lending and the future of mortgage lending.

OpenClose and QuestSoft will also touch on key updates being made their specific products that will help companies effectively test, train and prepare for, including release dates and 2018 CFPB HMDA data that can already be tested now.

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Speakers:

Kathy Olsen, director of LOS support services at OpenClose

Kathy leads customer support and training at OpenClose for its multi-channel LOS, LenderAssist, as well as its integrated products. She joined OpenClose in 2010 and has over thirty years of experience in the mortgage banking and technology fields.

Leonard Ryan, president of QuestSoft Corporation

Leonard has been associated with the mortgage industry for over 30 years, and is the founder of QuestSoft. He is a member of both MBA HMDA and NMLS Mortgage Call Report working groups, and is nationally recognized as a HMDA expert.

Downloadable materials that will be made available after the webinar: 

  • Presentation Slides [PDF] — available on the day of the webinar
  • Webinar Recording [streaming] — available 2-3 days after the webinar
  • Q&A [PDF] — available on the day of the webinar

The webinar is offered as complimentary to the mortgage industry but availability is limited. To sign up for the webinar, go to https://goo.gl/E8cTzP.

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QuestSoft Urges CFPB To Delay Implementation Of HMDA Specific Data Points

In a letter written to the Consumer Financial Protection Bureau (CFPB) addressing proposed changes by the CFPB to its HMDA regulations, QuestSoft president Leonard Ryan urged the Bureau to delay its changes to geocoding and remove additional demographic data.

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The eight page letter focused on five key areas of the new regulation:

  1. Bona Fide Errors and Proposed Geocoding Safe Harbor
  2. Demographic Data Collection – Specifically as it related to Ethnicity and Race Subcategories
  3. Reporting Threshold Adjustments
  4. NMLSR ID Reporting
  5. Industry Readiness

Ryan expressed concern for the future of LMI lending as a result of the CFPB plans to introduce a less accurate geocoding system but bolster it with a safe harbor. The new geocoder is expected to be 30% less accurate on results close to census tract boundaries and not be able to accommodate new addresses as quickly as products used in the industry today (including the FFIEC geocoder).

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Ryan also expressed concern that a guarantee on the geocoder will eliminate the higher quality products from the market and cause accuracy concerns for the Community Reinvestment Act and the trading of Low Moderate income loans in the open market.

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In the letter, Ryan continued with a detailed analysis of problems facing the industry over the new Ethnicity and Race Subcategories, urging the Bureau to provide at least one extra year due to implementation delays of both the CFPB and the GSE’s in releasing the new Uniform Residential Loan Application (URLA).

“In many ways, the demographic data additions are turning out to be the biggest train wreck of the new regulation,” Ryan said. “The lack of clarity and confusion over properly classifying borrowers has the potential to be a regulatory and fair lending compliance nightmare.”

A complete version of the letter is available at https://www.questsoft.com/hmda-hq

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Don’t Fear HMDA

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Here we go again. The industry just got over the pain of complying with TRID and now the CFPB is at it again. This time the changes will come for HMDA.

“The new HMDA reports will add significant costs and regulatory burdens to lenders, especially in the short run when lenders are becoming acclimated to the new reporting requirements,” noted Marisa Calderon, Executive Director of the National Association of Hispanic Real Estate Professionals (NAHREP). While the challenges and expenses will be similar to TRID, the richer HMDA data set will allow lenders to analyze their peers, their peers’ and their own lending patterns, and the communities they serve. The data analysis on a richer HMDA data set could help lenders uncover unmet needs and create new and better lending programs tailored to the needs of these communities.”

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Calderon is an 18-year veteran of the financial services and housing industry. She takes a direct role in the association’s conference and event planning efforts, including NAHREP’s Housing Policy and Hispanic Lending Conference in Washington, D.C. and the association’s marquee event, the National Convention and Latin Music Festival. Ms. Calderon serves on the Fannie Mae Affordable Housing Advisory Council, Advisory board of Banc of California, on the board of directors of the Hispanic Wealth Project and is co-author of the association’s annual publication, The State of Hispanic Homeownership. She speaks at conferences and events regarding NAHREP’s advocacy efforts, policy positions and on general Hispanic housing trends.

“Beginning with the HMDA data collected in 2017 and submitted in 2018, the responsibility to receive and process HMDA data from lenders will transfer to the Consumer Financial Protection Bureau from the Federal Reserve Board,” Calderon pointed out. “In addition, filers will submit their HMDA data using a web interface referred to as the “HMDA Platform.” As part of the submission process, a HMDA reporter’s authorized representative has to certify to the accuracy and completeness of the data submitted.”

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On the bright side, vendors are ready to help lenders meet this challenge. For example, PROGRESS in Lending gave QuestSoft its Innovations Award for the work it has already done to ensure lender compliance. Last October, QuestSoft sent specifications to 29 loan origination software companies, and those imports are expected to come online during the first quarter of 2017. Customers can then import live data from those LOS platforms to see gaps, interact with their systems, and internally adjust their procedures. QuestSoft’s CFPB HMDA test version is also being provided well in advance of the CFPB’s schedule. Compliance RELIEF has been designed so that as error codes and other specifications are made available by the CFPB, QuestSoft will be able to incorporate them quickly and distribute updates to lenders testing their processes.

“On a granular level, HMDA will be a more smooth process to implement vs. TRID,” said Jon Johnson, Compliance Manager of Castle & Cooke Mortgage. “We were also given more time to implement HMDA and it won’t disrupt existing processes as much. Systems and people are being trained up right now.”

Johnson began working for Castle & Cooke Mortgage in 2016. Previously, he worked for the mortgage document preparation provider, IDS, where he was a project manager, compliance officer, and spokesperson for the implementation of TRID. Currently, Jon manages a team that helps with TRID, ECOA, and HMDA compliance. Jon is working on Castle & Cooke Mortgage’s new HMDA requirements implementation. Jon acquired a law degree from Arizona Summit Law School.

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“Lenders need to make sure that their systems are updated and that they are collecting the new data,” he advised. “If you have a file that you start this year, but it doesn’t close until next year we have to gather those additional data points. This is a great opportunity for lenders to look at their data and begin to make changes. We’ve seen the CFPB be a little more lenient with TRID, but in this case the CFPB has come out strong even before the new rules are in place.”

But the impact of these HMDA changes can be far reaching, according to Michael Vitali, Senior Vice President of Compliance at LoanLogics. ”HMDA is cumulative whereas TRID is loan by loan. Before cell phones and cameras, investigators had to do much worse, but today everything is instantaneously available. HMDA is like the cell phone. It’s now all out there for regulators to see much easier. The good side is that if a lender uses all this new data they can look at their portfolio in advance and make adjustments.”

At LoanLogics Vitali monitors regulatory developments and their practical implications for lenders, servicers and vendors in order to support Executive Management in high-level strategic decision-making. This includes identifying new market opportunities and new product enhancements. He supports the company’s Compliance Analysts on a day-to-day basis, including reviewing and approving the scope and substance of compliance reviews, answering loan-level questions, and participating in the preparation for, and defense of, regulatory exams of our clients.

His duties also include the research, interpretation and conveyance of proposed legislation related to the industry to recommend policy and/or procedure changes to maintain continued compliance with all applicable laws, rules, and regulations, investor requirements, and standard mortgage practices. “The main thing in 2017 for lenders to do will be preparation,” he said. “This business is very production geared. With refis drying up they may be focused there and not pay too much attention to this. That would be a mistake. You can’t wait until 2018 to make sure that everything is collected. The LOs also need to be trained.”

As we all know, the CFPB fined Nationstar $1.75 million for “consistently failing to report accurate data” about mortgage transactions from 2012 through 2014. It was the largest HMDA penalty ever imposed by the CFPB. This is what is to come for lenders that are not ready.

“Lenders need to do this right,” warned Vitali. “The fine was not discrimination, it was for mistakes. I look at it this way: Nobody ever took HMDA data seriously, but they will now. Technology will help lenders identify risk. Lenders will have an opportunity to look in the mirror to see if they like what they see. If they don’t like what they see they can go get a haircut or a shave to look better. The major drawback is that lenders tend to rely too much on the technology without evaluating their own processes and data.”

“The upside is that it will expand homeownership to classes of people that have been disenfranchised,” added Dr. Rick Roque, President and Founder of MENLO, a firm that advises mortgage lenders on their M&A strategies. “The largest growing homeowners are women and immigrants. The HMDA data will provide more insight into who lenders are providing financing to and why. If I’m a local lender in Miami beech and my usual borrower earns $500,000 or more, that data is going to be very homogenized, which might open you up to litigation if that borrower is not representative of the majority of borrowers in your area. So, lenders that may be under capitalized may have difficulties.”

This is where automation comes in. “Technology offers visibility,” notes Roque. “Most lenders want to do the right thing, but they are not aware of how homogeneous their consumer base is. Lenders that are behind the eight ball now are going to be screwed in 2018.”

Johnson at Castle & Cooke Mortgage notes that lenders need to customize the technology. “Lenders need to be able to build reports off of the data points so you can see patterns. Also, you have to compare the data in all of your systems so it’s the same. The data in your LOS has to match the data on your docs, for example. Lenders can do this if they prepare.”

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ARMCO Enhances ACES Technology To Support Upcoming HMDA Changes

ACES Risk Management (ARMCO), a provider of financial quality control and compliance software, announced that it has upgraded its ACES Audit Technology solution with over 15 new enhancements. The enhancements include support for the HMDA changes scheduled for 2018, at-a-glance dashboards, and heightened automation for the system’s ACES Intelligent Questionnaire (ACES IQ), which has been shown to reduce QC audit times by an average of 30 percent.

ACES Audit Technology also includes new at-a-glance dashboards that provide users with a high-level view of the loans and exceptions in their queue in an easy-to-read format. ACES Dashboards’ visual charts and graphs help users to quickly identify issues and determine pipeline status in real-time. Its live audit-level filtering enables users to customize the experience according to their unique goals and demands.

“Industry requirements keep expanding and the number of audit questions are increasing,” said McCall. “In response, we made considerable improvements to ACES IQ technology, which include pre-set and user-defined audit questions, to help lenders streamline efficiencies.”

ACES IQ has been enhanced to include multiple layers of automation, including audit, loan and borrower level dependencies, supported by data-driven triggers that will support an efficient and streamlined workflow. With this enhancement, ARMCO clients are reporting reductions in post-closing audit times of up to 30%.

“When you combine a contracting market with a regulation-heavy environment—and that’s exactly what the mortgage industry is facing right now—lenders need operations that aren’t just powerful, but also lean,” said Avi Naider, CEO of ARMCO. “This update enhances quality and compliance, while also providing the efficiency and speed for a leaner, more economical process.”

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Compliance Can Be Easy

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We’ve entered a new paradigm in mortgage lending. Unlike the historical risks to lending like rate fluctuation or other market changes, lenders today know the greatest risk to their business is compliance. Those market-based storms of yester-year were weathered by the most prepared lenders in the space. Now, the compliance-based storms of today bring new risks, which must be properly prepared for in order to stay successful. Fortunately, this seemingly uphill battle is not yours to fight alone. The fast approaching Home Mortgage Disclosure Act (HMDA) Regulation C changes to the Loan Application Report (LAR) bring with it over 30 new data points to collect and report on, and staying compliant can seem hard, but it doesn’t have to be. With proper preparation and technology, even the most complex regulations can become more approachable – almost, dare we say, easy.

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The journey to ‘easy street’ isn’t a simple one. Especially with the new HMDA rule, the time to prepare is now. By taking the appropriate steps today, you will ensure you are ready to collect these new data points well in advance of 2018. This journey isn’t yours to make alone – it involves preparedness from you, your teams, and your technology providers. Here’s how you can make the leap to compliance-made-easy.

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Create Your Own Destiny. While you are hopefully partnering with providers that support and enable your ability to comply with new regulations, at the end of the day, the responsibility falls on your shoulders. If there’s anything to take away from the recent TILA-RESPA Integrated Disclosure Rule (TRID) experience, it’s that having a well-documented way to track your plan to address new regulations, including the expected outcomes, will help ensure everyone is on the same page. To be successful, this step is not optional. Once you have documentation in place, you can begin to design the processes.

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The lowest hanging fruit to tackle is often systematic configuration. As it relates to HMDA, you may be collecting many of the new data points already, but collecting and submitting could still present many challenges. Make sure your system will be able to validate the HMDA LAR data elements prior to LAR submission to ensure completeness. If there are incomplete data elements, the system should message the user regarding the potential need for additional data. This may be done on platform or through an integration with a third party partner that specializes in HMDA data. As was the case with TRID, your loan origination platform partner should be forward-thinking regarding HMDA functionality and integrations. Communicate with them regularly to make sure your needs are aligned with their planned efforts. Additionally, if system logic and/or configuration around HMDA data isn’t in the plans for you or your technology partner, you will, at a minimum, need to document the workflow steps and procedures that your operational staff will perform to comply with the regulation. Not every piece of HMDA can be automated, so completeness and versioning of your compliance policies and procedures is critical. Take control of your own destiny and map out your plan. Everyone will sleep better when you do.

Get to the Data. Heading into these HMDA changes, you will need access to data on various levels – either from the system of record in the form of extracts, or from the database to allow reporting tools to take the information and provide the LAR report on your behalf. There are many approaches to this, and depending on your environment and situation, this might be a bit challenging – especially if you have a home equity-specific system and a separate mortgage production system. At some point, the required HMDA information needs to be available and transparent from all of your lending channels and business lines.

Fortunately, there will be solutions ready for these changes. If you aren’t confident in your ability – or your technology partner’s ability – to support the HMDA changes, now is the time to begin looking for alternatives. With the right technology, the additional data collection can be validated and checked by the appropriate system requirements, and in some cases, automated. In other words, if the data collected is incomplete, based on your policies, procedures, and system configuration, the system can stop a user from progressing the application until the data is complete. While this certainly presents new challenges and training needs for loan officers, ultimately, it ensures compliance with HMDA.

In addition, take time to establish a robust Fair Lending Program that requires quarterly and annual reviews of your HMDA data for accuracy and completeness. At least a few times a year, review LAR outliers. Also, consider having an independent third party conduct such reviews. How much of the Fair Lending review is conducted internally and how much is outsourced is certainly up to you. At the end of the day, establishing and maintaining compliance with HMDA is all about the data. Data is fickle and influenced by a number of factors, so the more checks in place, the less time and money you will have to spend retroactively analyzing, and even correcting, the data.

Questions to Ask Your Technology Partners. While HMDA feels far off, it’s not. Although we’ve talked about your internal plan of action and how to get to the data, the technological side of things is not to be overlooked. Now is the time to begin communicating with your partners. Questions to ask include:

>>What is your interpretation of the HMDA rule?

>>How do you plan to support us?

>>Do you have educational sessions planned that we will be able to participate in?

>>Will you solicit our input as you work through the system changes?

By now, your partners should have a prescribed plan, including how it will affect your business. Your provider should be digesting, documenting, and designing their proposed changes to enable your compliance with the new HMDA requirements. In our new lending world, leveraging technology is essential, and although new regulations often feel like obstacles, after just a few months, your teams will find the new data points second nature.

With the need to collect the additional HMDA data points about a year away (likely beginning in Q3 or Q4 2017 for loans with an action taken date potentially in in 2018), the clock is ticking for documenting action plans. Everyone, by now, should have a start on taking the appropriate steps to prepare for the new HMDA rule. In my experience, while this might seem logical, it’s often hard to fit in the day-to-day business of residential lending operations in our country. If the task seems daunting, seek help. Consult with your partners and peers to identify gaps in your plan. Through teamwork, proper planning, and great technology the HMDA changes might just seem like a walk in the park come 2018.

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Are You Ready For The New HMDA Changes?

There was a lot of talk at the MBA Annual about the CFPB’s HMDA changes, but good vendors are ready. QuestSoft has released its data specifications for the 110 fields that will make up the new Home Mortgage Disclosure Act (HMDA), to 29 loan origination software (LOS) vendors. The company has also made specifications and other critical resources available to their 2200 customers via their new online HMDA Resource Center. This will allow lenders to test and comply with the new Consumer Financial Protection Bureau (CFPB) requirements for changes to HMDA well in advance of the 2018 deadline. The data specifications are expected to assist LOS vendors in accelerating their compliance with the expansive rule by allowing them to coordinate testing with lenders and have use of live data months in advance of federal deadlines. This should easily give lenders the ability to avoid the problems they experienced implementing other CFPB rules including “Know Before You Owe” (TRID) and Qualified Mortgage (QM) identification.

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QuestSoft also announced that it will provide a free 2018 testing version to all of their Compliance RELIEF HMDA customers on January 2, 2017. This free module will allow lenders to collect data required in 2018 for testing and analysis a year before it will be mandated by the CFPB. Currently, QuestSoft software solutions are the most used HMDA management systems in the industry.

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The CFPB has recently made moves to accelerate collection of expanded government monitoring information (GMI as in Race, Sex and Ethnicity). Originally restricted by regulation from collection until January 1, 2018, the CFPB recently and suddenly reversed itself and updated the regulation to allow for voluntary collection in 2017. They also approved early use of the new Uniform Residential Loan Application (URLA) for the same year.

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Despite this sudden change, QuestSoft immediately reassured its client base and vendors by indicating that their Compliance RELIEF software was fully compatible with the new collection adjustments and that the regulatory changes were already accommodated due to forward thinking programming.

“We are working with various technology providers as well as lenders with proprietary systems and we are fully equipped to assist in building user interfaces that leverage the new data points and compliance logic”, said Leonard Ryan, QuestSoft president. “We also took advantage of our existing design so that a single interface will be compatible with the new data requirements and backward compatible with current formats. This will greatly assist our customers with their audit preparation for Years 2012 to 2017.”

With the new data fields successfully added to the existing interface, QuestSoft’s integrated partners can provide their own customers with up to a full year of testing by utilizing QuestSoft’s products to analyze new HMDA data in advance of the 2018 deadline. Lenders utilizing the testing version will be able to look back several years without toggling between screens, providing the most current information reflecting pre and post CFPB standards.

QuestSoft is channeling all of these development efforts into their Compliance RELIEF software, which replaces the company’s popular HMDA RELIEF product line. The software features significant upgrades in data formatting and security and simultaneously addresses HMDA, CRA, Fair Lending, NMLS Call Reports, Geocoding, Mapping and individual state regulations in a single SQL based solution.

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HMDA Costs: $40 Million Per Data Field

Recently the CFPB published its projected one-time costs to lenders for modifying systems and processes related to the new HMDA regulatory requirements. After getting through all the numbers and the accounting rules the bottom line is this: It will cost the industry $40 Million (yes million) for each new field included in the revised requirements. While I am not an accountant, David Moffat of Mortgage TrueView is. His analysis and summary of the expected costs as published by the CFPB resulted in this astronomical number.

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Mr. Moffat, as part of his analysis finds that the reoccurring HMDA costs under the new rules detailed the number of institutions by reporting profile, in other words by the largest lenders to the smallest. While the associated costs for the largest lenders (of which there are four) may appear reasonable, this cannot be said for any other company. Their approach to such things as labor costs, how the adoption costs are presented as a percentage of non-interest expenses and the division of these costs between all segments of the lender population has led him to determine that the CFPB has created their own Regulatory Accounting Principles. So instead of GAPP, we now have a new basis of accounting “CRAP”. If this material has not yet been reviewed by the CFO of your organization, it may be wise to let them review this published information.

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While the cost of new regulations has traditionally been of concern to lenders, this comprehensive analysis begs for the answer to two questions: (1) What are we getting for our money and (2) Why haven’t lenders been yelling “foul”?

Keeping in mind that HMDA has been around for forty years or so with very little improvement in the distribution of home mortgages to each race, ethnicity and/or gender, what will this new data get us. After all, one of the rationalizations for the mortgage spree in the mid 2000s was the development of mortgage products that would provide accessibility to affordable housing. That just didn’t work out so well. So what will all these new fields do? Will they isolate the societal causes of why some people are paid more than others, regardless of race, sex or ethnicity and allow us to cure a deeply embedded segregation against the lower class? Will they explain why realtors repeatedly lure sellers and buyers into properties that are over-priced and intimidate appraisers to “bring in the value” or put an end to this practice? Are we actually going to get information from this data that will allow lenders to do what HMDA legislation was intended to provide—data that will tell lenders where they have opportunities to expand? Maybe there is some other overwhelming benefit that is yet to be discovered, but we better be getting some benefit for the cost we are paying.

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But what if we’re not? Where are the lenders and/or the MBA, ABA, Credit Union and Community Bank Associations? Should they not be publicizing this outrageous cost and calling members to fight back. After all, lenders have nowhere to get the funds to pay these costs but from consumers and isn’t the CFPB supposed to be protecting consumers? Where is the hue and cry from consumer protection groups? Are all of these entities so in awe of the CFPB that they don’t even question the costs? Since the announcement about these new fields the only news coming from the industry has been technology companies laying out the needed changes to LOS systems and the related costs as well as seminars on “Implementing HMDA Changes”. Seems everyone is making money but lenders.

At the end of the day I am tired of lenders literally paying penance for over 10 years. Even though low interest rates have been maintained for a long period of time, those seem likely to end soon. If volumes drop and housing prices rise how can we continue to pay these outrageous costs? Will it take the destruction of the entire mortgage industry for legislatures, advocates and consumers to realize that we have paid our dues and stop this nonsense?

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HMDA Highlights CFPB’s Failures

My Mother was a wonderful cook and baker. Coming home from school every day found the house full of wonderful smells and treats cooling on the kitchen table. The reaction of everyone who came into the house was always “oh that smells so good!” Her reply was always, “We’ll see. After all the proof is in the pudding.” Tasting the food and seeing if was as good as it smelled was the only way to make sure there were no hidden issues that rendered it uneatable.

For the past five years the CFPB has been mixing up a menu of new “tastes” for mortgage lenders and shoving them down our throats. The purpose of this was of course, to ensure that consumers were given a fair chance to obtain a mortgage that worked for them and did not result in the overpayment of fees or interest rates. This, they said was the answer to the problems that caused the mortgage meltdown and allowed everyone who could qualify to buy a house. In order words, with these new requirements the potential risk faced by those looking to buy or refinance a home would be mitigated.

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So the question is, have the changes, such as disclosures, credit standards and complaint databases been effective? On September 21st, the FFIEC released the HMDA data from 2014. Here at last was the proof in the pudding. Would the data show that consumers were taking advantage of these changes to obtain new mortgages? Were we in fact increasing homeownership, especially among those with lower incomes and those in protected classes?

Unfortunately the initial results were, to the least, disappointing. According to Mortgage Trueview, a data analytics firm in Bountiful, Utah, exclusive of the loan purchased by other lenders, the year over year number of applications decreased by 29% compared to 2013. Applicants with incomes less than $50,000 decreased by 24% and applications from male, non-white applicants decreased 23%. The data also shows that this was not isolated to particular metropolitan areas, but was evident in 362 MSAs. The Philadelphia metropolitan area suffered a 69% decrease, the largest of any MSA.

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These numbers appear to indicate that the changes made by the CFPB do not appear to be working. In fact it some may even say that so far the CFPB has failed to make any positive change in housing despite the costs and confusion of implementing their new requirements and the tremendous costs associated with training, file reviews and ultimately fines associated with them.

Of course, there is no doubt that there may be other influences that impacted these numbers. We know that housing inventory was down and housing patterns among millennials, who’s 72 million members would normally be in their peak home buying years. However, interest rates have been consistently at their lowest levels and employment rates are high.

It appears that the CFPB is failing. Even those who eagerly anticipated the new requirements and consumer options, appear to be questioning their effectiveness. If we really want to aid consumers, more complicated disclosures and tightened credit standards do not appear to be the answer.

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In This (Finally) Post-TRID World, What Comes Next?

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Amanda-PhillipsFor over a year, it has been all TRID, all the time. As we pass the TILA RESPA Integrated Disclosures (“TRID”) implementation date, regardless of how prepared lenders are feeling, one thing is certain: TRID is happening. So now the question becomes: What is the “next big thing” for the industry?

Arguably, the next big industry change is the recently published Home Mortgage Disclosure Act (“HMDA”) final rule. The Consumer Financial Protection Bureau (“CFPB”) published a proposed rule amending Regulation C to implement amendments to the HMDA as required by the Dodd-Frank Act in August 2014. The comment period for this proposed rule closed on October 29, 2014, and the final rule was published October 15, 2015.

The current HMDA Loan Application Report (LAR) requires that specific data by specific institutions on specific loans be reported. The data collected and reported includes:

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>> Data on the loan application (application number, application date, loan type, loan purpose and the loan amount requested)

>> Action taken on the application (e.g. originated, approved or denied)

>> Reasons for denial (optional)

>> Date action was taken

>> Loan information (lien position and rate spread in some instances)

>> Property information (property type, occupancy status, property location by MSA, state, county, and census tract)

>> Applicant information (ethnicity, race, sex, and annual qualifying income)

Just as the Dodd-Frank Act mandated that the CFPB promulgate the TILA RESPA Integrated Disclosure rule, Dodd-Frank mandated certain changes to HMDA via Regulation C amendments; however, the CFPB expanded on the mandate requirements when they drafted their final rule. Section 1094 of the Dodd-Frank Act specifically required the CFPB to promulgate their rule to expand HMDA reporting to include total points and fee, rate spread for all loans, “riskier” loan features (for example, prepayment penalty or negative amortization), unique identifiers for loan originators and loans, origination channel (retail or wholesale), property value, more detailed property location information, the borrowers’ age(s), and the borrowers’ credit score(s).

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The CFPB met this obligation by adding data fields to the HMDA LAR as mandated by Dodd Frank, but went above and beyond their minimum obligations by modifying or adding over 30 data points. Some of the new and modified data fields required by the final rule are:

>> Debt-to-income ratio (DTI)

>> Combined loan-to-value (CLTV)

>> Which automated underwriting system (AUS) was used and the recommendation

>> Interest rate

>> Credit score

>> Applicant age

>> Total origination charges

>> Total discount points

>> Total lender credits

>> Property value

>> Units financed

>> Affordable housing/income-restricted housing information

>> Manufactured housing classification and land property interest status

>> Unique identifier for the lender

>> Removal of the option for denial reasons, making that data mandatory

While the additional data fields in the HMDA LAR are arguably the most significant changes imposed by the new HMDA rule, a close second are the changes in institutions obligated to submit that LAR data. Under the current HMDA regime, there are two different standards for institutions that must submit a HMDA LAR: one for depository institutions, and one for non-depository institutions. For depository institutions, several factors come into play when determining their obligation, including asset size and originating at least one home purchase loan or refinancing of a home purchase loan in the prior year. Under the new final rule, the threshold for the number of originated loans is increased to 25 closed-end or 100 open-ended covered loans in the preceding two calendar years for depository institutions.

Currently, for non-depository institutions, the major qualifying factors are whether the institution has a branch or home office in a Metropolitan Statistical Area (MSA), if at least 10% of its total origination dollars are from home purchase or refinanced home purchase loans, and if those home purchases or refinancings total $25 million or more dollars in the prior calendar year. Additionally, non-depositories have an asset threshold of $10 million or 100 or more home purchases or refinancings in the prior calendar year. Under the CFPB’s final rule, in addition to having a branch or home office in an MSA, a non-depository institution must file a HMDA LAR if it originated 25 or more closed-end or 100 or more open-ended covered mortgages in the two preceding calendar years. The definition of “closed-end” mortgages, under the final rule, includes closed-end reverse mortgages and home equity loans secured by a dwelling. This change dramatically expands the number of non-depository institutions that must collect and submit the data on a HMDA LAR each year.

Although most loan origination systems (LOS) collect a vast majority of the new data points already, the obligation to collect and submit this data could be a difficult undertaking for some smaller lenders. Even for those who already collect and store this information in their LOS, the enhanced need for accuracy imposed by the submission of the data to the Bureau is bound to increase costs to the business for personnel and likely technology or even outside legal, quality control, compliance and technology assistance.

The new data collection and reporting obligations will be especially burdensome – and unfamiliar — to those non-depository institutions that are new to the HMDA reporting process. Many of these institutions will not only be new to the process, but will be relatively small, requiring significant “spin up” on the staffing and data integrity responsibilities that come along with being a HMDA reporting lender.

For consumers, the additional data collected, such as FICO score(s) and property address, present privacy issues. The CFPB has indicated that there is sensitivity to this potential issue, but the industry remains concerned about consumer privacy.

It is also not clear what the CFPB will use this additional data in the LAR for, but there is plenty of speculation. The most popular speculation is that the CFPB will use the HMDA LAR data to pre-examine lenders for a Fair Lending exam. That is, the CFPB will analyze the new HMDA LAR for statistical evidence of Fair Lending violations. Combine this speculation with the recent United States Supreme Court ruling that Fair Housing Act claims can utilize the legal theory of disparate impact, and the HMDA stakes rise significantly.

The Court’s opinion regarding the legal theory of disparate impact, as applied to the mortgage industry under the Fair Housing Act in particular, means that lending practices that are not explicitly discriminatory, but that have a negative impact on minorities disproportionately as compared to non-minorities, can be found to have violated the Fair Housing Act. Now, let’s apply that theory now to the analysis of the expanded HMDA LAR data prior to ever setting foot in a lender’s office for a Fair Lending exam. The fear, warranted or not, is that examiners could potentially have a predisposed opinion of a lender based on data alone.

Under the new HMDA rule, establishing a robust Fair Lending Program is going to be essential for all mortgage lenders. This Program and the results of quarterly and annual reviews should be documented and retained. HMDA data should be tested for accuracy and completeness regularly. Analysis of the LAR for outliers should be completed on a quarterly basis and a full regression analysis conducted annually. It is also wise to have an independent third party conduct the annual regression and outlier file review. How much of the Fair Lending review is conducted internally and how much is outsourced will often be a question of pricing and resources.

Lenders may be able to conduct the quarterly self-assessment, minimizing costs to third party vendors, using specialized compliance technology that analyzes and reports on the statistical review of a lender’s HMDA data. Self-correction is as important as self-assessment. Any violations of the law or the company’s own Fair Lending policies and procedures should be self-corrected and documented for possible presentation to a regulator or examiner.

The new HMDA rule is upon us. While we continue to adapt to life with TRID, the industry needs to begin to refocus its attentions on what’s next, and HMDA and Fair Lending are the next candidates affected by reform.

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Going Beyond TRID Compliance

We talk a lot about TRID compliance, but there are a host of other things that lenders also have to comply with. For example, IndiSoft has teamed up with Chicago-based business consulting firm Navigant Consulting, Inc. to include Home Mortgage Disclosure Act (HMDA) reviews via its RxOffice Compliance module. These enhancements will provide visibility and simplicity to users striving to remain compliant with HMDA regulations.

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“The HMDA review will transform the way users manage their compliance issues,” said Beji Varghese, a managing director at the  valuation and financial risk management practice at Navigant. “The addition of the HMDA LAR module  will allow users  to quickly identify issues with their HMDA data and design solutions to remediate those identified issues.”

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In addition to supporting existing federal, state and investor regulations, Navigant and IndiSoft now offer technology  to rapidly verify compliance to HMDA standards. These features include:

  • HMDA Data Verification: Support of blind entry of data enables input of data without any influence of existing information and allows comparison of data with LAR data.
  • Ability to consume Loan Application Register (LAR) data file.Ability to upload LAR data files in Excel format from the application, allowing users to see the comparison of blind entry and LAR data in one click. This will enable a clear identification of mismatched data points.
  • Support for various key reports related to HMDA quality control.The platform now supplies three distinct SSRS reports with one–click export capabilities.  .

“Staying compliant has never been so simple with this innovative review process,” said Vinayak Kulkami of IndiSoft. “Our technology gives users the peace of mind they need to focus on day-to-day processes instead of whether they are compliant.”

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