The Federal Credit Union July - August 2016 - (Page 50)

COMPLIANCE CENTRAL The HMDA Final Rule Is Knocking on Your Credit Union's Door By Eliott C. Ponte O n Oct. 15, 2015, the Consumer Financial Protection Bureau (CFPB) issued a final rule amending the Home Mortgage Disclosure Act (HMDA or Regulation C, that drastically expands the amount of mortgage loan application data covered credit unions will be required to report. HMDA requires covered credit unions to collect, report and disclose information about their mortgage lending activity. While the final rule cites an effective date of Jan. 1, 2018, credit unions that are subject to the final regulation will need to have plans and processes in place well before the effective date. This article highlights the major changes imposed by the final rule, and includes planning considerations for credit unions beginning to prepare for the new reporting requirements. Changes to Covered Institutions. Credit unions that meet the definition of "financial institution" are subject to Regulation C. This definition will continue to include certain requirements such as an asset threshold (currently $44 million), having at least one branch in a metropolitan statistical area and originating at least one home purchase or refinancing loan. The amended rule establishes an additional loan origination threshold, which will be implemented in two phases. Phase 1 is effective on Jan. 1, 2017, and will add to the definition of "financial institution" a requirement that the credit union originate 25 home purchase loans (including refinancings) in each of the two preceding calendar 50 years. Phase 2 goes into effect on Jan. 1, 2018, and it further refines the Phase 1 loan origination threshold. In Phase 2, in order to meet the loan origination threshold in 2018, a credit union must, in each of the past two years, (a) originate at least 25 dwelling-secured closedend mortgage loans, or (b) originate at least 100 dwelling-secured open-end lines of credit. These two transactional thresholds are designed to apply independently of each other. For example, a credit union exceeding only the 25 closed-end mortgage loan threshold is required to report HMDA data on its closed-end mortgage loans, but not its open-end lending. Changes to Covered Loans. The rule also expands the scope of which loan products are reportable for HMDA purposes. Currently, covered credit unions are required to collect and report on three types of loans: (1) home purchase, (2) home improvement and (3) refinance. The current framework is purpose-driven and does not require reporting for open-end products like home equity lines of credit. The final rule shifts to a focus on "covered loans," which include both closed-end and open-end dwelling-secured loans, with a few exemptions like temporary financing. These exemptions are worth reviewing in full, but overall the scope of the rule will generally be "dwelling-secured transactional reporting," significantly expanding the scope of reportable transactions. Business or commercial purpose transactions will, however, continue to be reportable based on purpose (home purchase, home improvement or refinance), such as a loan to buy a multifamily dwelling. Expanded Data Points. After determining what products must be reported under the final rule, the next hurdle is determining what information will need to be collected to satisfy the rule's reporting requirements. The final rule expands or modifies the data points required to be collected for certain applications, approximately doubling the number of data points as compared to the current rule. It will be challenging to ensure that a credit union's core system can identify and aggregate the expanded data set. In addition, credit unions that work with indirect lenders may need to ensure that their reporting systems can aggregate the necessary data to comply with the final rule. 2018 Data Points Collected in 2017. Knowing what information must be collected is only half the battle, as the timing for collecting the data also presents its own challenges. The bulk of the final rule requires covered credit unions to collect the expanded data points in 2018; however, the final rule's effective dates are applicable based on when a credit union takes final action, not when it received an application. For example, if a credit union receives an application on Dec. 8, 2017, but takes a "final action" on the application on Jan. 1, 2018, it is required to collect and report the loan according to the THE FEDERAL CREDIT UNION JULY-AUGUST 2016

Table of Contents for the Digital Edition of The Federal Credit Union July - August 2016

The Federal Credit Union July - August 2016