NMP - September 2016 - 87

ad for s and HMDA By By Rich Rich Gagliano Gagliano he CFPB's Home Mortgage Disclosure Act (HMDA) changes mandate that new or modified data points be collected during the residential mortgage loan origination process, and require more frequent reporting than many lenders have had to do in the past. As with most major initiatives, the new requirements will certainly produce significant process impacts for lenders, borrowers and external vendors, along with a number of risks that are associated with the implementation phase. While the exact nature of those risks will vary from institution to institution, there are four broad categories that are impacted by the expanded HMDA requirements, with dependencies and risks in each category as follows: T I. Expanded data capture related to applicants In this category, important changes to loan applications will be required to accommodate the 48 data points that must be captured, including 25 newly created points; 12 points that were modified from their previous form, and those that continue to be required, without changes. One key area of change is the reporting of ethnicity and race into more granular categories that are better aligned with the disaggregated categories utilized by the U.S. Census Bureau. For example, identifiers such as Hispanic or Latino that have been used in the past will be disaggregated into groups such as Mexican, Puerto Rican, Cuban, etc. This will allow federal agencies to take a deeper look into the way these various groups are served by the mortgage industry. In addition, the updated HMDA data capture points will include the age of applicants to evaluate how the industry is serving the country's distinct age groups, such as Millennials, Baby Boomers and others. Debt-to-income information for the applicant, as well as the results from Automated Underwriting Systems, will also be reported. II. Data related to the property The current loan application form asks for Property Type, but going forward, Method of Construction will replace the Property Type description, and the number of units associated with the property will also be collected. Other required information includes the value of the property that is used to secure the loan. III. Data related to loan features All loans that are 'dwelling secured'-including home equity lines of credit for the first time-will be reported on beginning Jan. 1, 2018. Other elements that will be reported include loan terms; costs such as points and fees or origination charges; discounts, credits, and introductory rate periods, non-amortizing features of the loan, and so on. IV. Universal loan identifiers for each loan Each loan will be associated with its own Universal Loan Identifier (ULI) on or after Jan. 1, 2018, for covered transactions. The ULI consists of the lender parent company's LEI, which is obtained from a Web site, plus 23 characters which are unique to the transaction and a two-character check digit. The ULI will be associated with a loan from cradle (initial application) to grave (final disposition of the loan), as well as through subsequent HMDA reporting events such as loan purchases. This means the ULI for a loan must always be in the system of record. The primary unknowns Some of the data requirements associated with the new Uniform Residential Loan Application (URLA)/ Fannie Mae Form 1003, such as the collection of Race, Ethnicity and Sex, cannot be collected before Jan. 1, 2018. However, while the URLA has already been redesigned to accept this information, the GSEs have said that lenders will not be required to start using the updated applications by Jan. 1, 2018, though lenders may do so if they so choose. More information on the deadline by which lenders must switch over to the new URLA will come at some future point. Regardless of whether or not lenders use their current forms or the newly redesigned forms, the expanded HMDA data elements must still be captured and reported as of Jan. 1, 2018. If systems and processes are not ready by then, alternative measures must be identified and planned for to accommodate the expanded HMDA data collection on day one. For example, lenders may need to create and implement an Addendum form to accompany the loan application in order to capture the required government monitoring information on time. And of course, technology vendors will be working closely with document providers and the GSEs to help ensure that everything that CAN be ready IS ready by Jan. 1, 2018. Nonetheless, if an addendum document is needed in order for lenders to deliver the expanded/modified HMDA information on time, the data files will have to be slightly different to accommodate the different decision engines used by the GSEs. This means that lenders must be prepared to produce two data files- one for Fannie Mae and another for Freddie Mac-to send along with the GSEspecific loan application. Other impacts In addition to these considerations, each lender, technology partner and document provider will likely need to be prepared for a range of other impacts as well. For example, lenders with a loan origination system that is used by their internal loan officers must have a user interface (UI) in order to utilize that system. The lender may also have an internal point-ofsale system that is independent of their fulfillment system-requiring a second UI. Then, if the lender provides a system that supports their wholesale brokers, a third UI must be supported. And if consumers are enabled to complete and submit their applications directly to the lender, a fourth UI may be needed. It is critical to keep in mind that for each section of the 1003-where data is being captured in completely different ways-there is likely to be an impact to each of continued on page 97

Table of Contents for the Digital Edition of NMP - September 2016

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