The Consumer Financial Protection Bureau (CFPB) is taking steps to improve information reported about the residential mortgage market to help better understand borrowers’ access to credit. As a first step in the rule-making process, the CFPB is convening a panel of small businesses to provide feedback on potential changes to mortgage information reported under the Home Mortgage Disclosure Act (HMDA). The Bureau is also unveiling a new online tool that makes it easier to navigate the publicly available HMDA data.
“Today we are asking for small businesses to provide feedback on ideas to improve the Home Mortgage Disclosure Act, which monitors the largest consumer financial market in the world,” said CFPB Director Richard Cordray. “We want there to be better information, better collection, and better access to this important information.”
HMDA was enacted in 1975 to provide information that the public and financial regulators could use to monitor whether financial institutions were serving the housing needs of their communities and providing access to residential mortgage credit. The law requires lenders to disclose information about the home mortgage loans they sell to consumers. HMDA was later expanded to capture information useful for identifying possible discriminatory lending patterns.
In the wake of the recent mortgage market crisis, the Dodd-Frank Act transferred HMDA rulemaking authority to the CFPB. The law directs the bureau to expand the HMDA dataset to include additional loan information that would be helpful in spotting troublesome trends.
Each year HMDA data is reported for the vast majority of residential mortgage loans originated in the U.S. In 2012, this near-complete inventory of mortgages came from 7,400 financial institutions that reported data for approximately 18.7 million applications and loans. The information that institutions report includes: the name of the lender; the type and general location of the property; and the race, ethnicity, and sex of the applicant. Reported HMDA data also include information about the loan amount and whether the loan is for purchasing a home, refinancing an existing mortgage, or home improvement.
The financial regulators share a subset of the HMDA data with the public after revising it to consider privacy interests.
While the HMDA dataset is the leading source of information about the mortgage market, it has not kept pace with the market’s evolution. Additional mortgage information could help federal regulators, state regulators, lenders, consumer groups, and researchers better monitor the market. For example, while home equity lending surged during the lead up to the financial crisis, lenders are not currently required to report home equity lines of credit in their HMDA data. Similarly, teaser interest rates proliferated before the crisis, but HMDA data currently contains only limited information about loan features and interest rates.
The bureau is considering changes to make it easier for mortgage lenders to provide better information. The bureau is also making it easier for the public to use the already-available public information. Taken together, these efforts can improve the quality and accessibility of mortgage loan information.
To provide better information about residential mortgage credit, the bureau is considering changes to the rules that establish what data financial institutions are required to provide under HMDA. As a next step in the rulemaking process, the bureau will convene a Small Business Review Panel, as required by the Small Business Regulatory Enforcement Fairness Act (SBREFA). Specifically, the bureau will use the panel to seek early feedback from small lenders, including feedback on how data can be updated to better reflect what is happening in the market. While this information would be reported to regulators, not all of it would be disclosed in the public HMDA dataset. Potential changes under consideration by the Bureau include:
►Improvements required by Dodd-Frank: In the Dodd-Frank Act, Congress directed the bureau to update HMDA regulations by having lenders report specific new information that could alert regulators to potential problems in the marketplace. This includes: the length of the loan; total points and fees; the length of any teaser or introductory interest rates; and the applicant or borrower’s age and credit score.
►New developments in the market: The Bureau is considering additional information that would give regulators a better view of developments in all segments of the housing market. The Bureau is considering asking financial institutions to include more underwriting and pricing information, such as the interest rate, the total origination charges, and the total discount points of the loan. This will help regulators investigate the true trouble spots in the mortgage market.
►Monitoring access to credit: The Bureau is considering new requirements that would more accurately capture access to credit in the mortgage market. The bureau is considering requiring institutions to include an explanation of rejected loan applications. The Bureau is also considering including whether the lender considered the loan to be a Qualified Mortgage (QM). Qualified Mortgages are loans that meet certain criteria under the CFPB’s Ability-to-Repay rule and offer extra protections for consumers. Including QM status in HMDA data will help regulators and the public determine how the CFPB’s rules are impacting the mortgage market. Additional information, such as the borrower’s debt-to-income ratio, will help regulators see whether financial institutions are making loans that are expensive or unsuitable for borrowers.
Because it can be cumbersome for lenders to collect and submit HMDA information, the Bureau is comprehensively reviewing reporting requirements. The CFPB is asking for feedback on ways it can:
►Streamline reporting: Many financial institutions are collecting the same or similar data for their own processing, underwriting, and pricing of loans, or for the sale of loans on the secondary market. The Bureau is considering methods to align the HMDA data requirements with well-established data standards already in use by a significant portion of the mortgage market. The CFPB anticipates that these alignments would significantly mitigate the burden on many lenders, and could improve the quality of the information reported.
►Standardize the threshold: Currently, all banks, savings associations, and credit unions that meet certain conditions must submit annual reports even if they make only a single loan. However, non-bank mortgage lenders are often only required to report if they make 100 loans and meet other conditions. The Bureau is considering proposing a rule requiring all banks and non-banks—if they meet certain conditions—to report if they make 25 or more loans in a year.
►Improve data entry: In addition to seeking feedback through the SBREFA process, the CFPB is consulting with other federal agencies about improvements to the HMDA data reporting and disclosure process. One idea is to streamline the data submission and editing processes for lenders by creating an interface that will allow lenders to connect their software to a CFPB intake system.
A factsheet about the changes the CFPB is considering is available here.
An outline of proposals under consideration on which the Bureau will seek input from the Small Business Review Panel is available here.
A list of questions on which the Bureau will seek input from the Small Business Review Panel is available here.
A factsheet summarizing the Small Business Review Panel process is available here.
If the Bureau develops a proposed rule, it will gather input from other sources, and the public will be invited to comment; a process that would take about a year.
Each year, the Federal Financial Institutions Examination Council (FFIEC) releases certain HMDA data to the public. However, many people have noted that the available information can be difficult to use because of its size and complexity.
In coordination with the FFIEC, the Bureau has launched a new HMDA tool that provides the public with easier access to mortgage data for 2007 through 2012. Users now have flexibility in how they:
►Filter information: Users can choose only to see the data they want. They can filter by geography (state, metropolitan area, county, and census tract), loan characteristics, property type, and more.
►Create summary tables: For example, users can compare refinances, home purchases, and home improvement loans over the past few years, or see county-level trends in federally-related mortgages.
►Download the data: Users can download the summary tables and the underlying HMDA data in the format of their choice. Available formats include those compatible with most spreadsheet programs and those most commonly used by software developers.
►Save and share results: Each query has a custom Web address, so users can save and share their results. Users can paste results into a document, a Facebook post, a Tweet, or anywhere else.
The new HMDA tool is available here.