Article By: Ben Giumarra, Spillane Consulting Associates, Inc.
We’ve spent a lot of time learning TRID and other rules written by the CFPB over the past 5 years. To what extent can we rely on some of those lessons, principles, and definitions to carry over to the last major Dodd-Frank mortgage regulatory reform item (HMDA)?
Good news and bad news.
Good news first – some of the new data points required by HMDA are carried over from TRID or Ability-to-Repay principles. So assuming we put in the hard work to get TRID or ATR/QM correct, these items will now copy/paste (or however that works) into the expanded HMDA LAR.
The bad news is that first (sorry, there are two pieces of bad news): mistakes made on ATR/QM or TRID may now be carried over to cause an error with HMDA. And secondly, HMDA doesn’t follow all of the same rules from TRID and other new regs. Sometimes-actually often- we’ll need to be careful to understand how HMDA actually presents completely new issues for us – HMDA doesn’t build perfectly off the other CFPB regulatory updates.
So let’s use this newsletter to begin and identify those items where the new HMDA Rule borrows from TRID or Reg Z (making our life easier), and those items where HMDA deviates, taking us into unchartered territory.
Where TRID Helps with HMDA
These are items where HMDA borrows from TRID or other Reg Z updates by the CFPB – i.e., where we don’t have to reinvent the wheel.
1. Loan Number (sort of)
The new HMDA rules requires us to report the “Universal Loan Identifier” (ULI) for every transaction. This includes 3 parts: (1) the institution’s “Legal Entity Identifier”, (2) up to 23 alphanumeric characters to identify the covered loan or transaction, and (3) a two-character check digit.
The 2nd part of the ULI should, practically speaking, match your “Loan ID #” as disclosed on the Closing Disclosure. But Note: There are some technical differences. For example, HMDA limits this to 23 digits, where no such limitation exists with TRID. The new HMDA Rule also goes into great detail regarding when a loan ID # can be recycled (which is basically prohibited per TRID).
2. Pricing Data (interest rate, points and fees, lender credits, etc.)
If you’re reporting these correctly on your Closing Disclosure, they should be populating on your LAR correctly. For the most part, this requires just a straightforward data integrity check.
3. Prepayment Penalty
“Ben, is this really a prepayment penalty or just a reimbursement of fees fronted at closing?” That was a good debate when the CFPB’s Reg Z rules around this topic came out in 2013-14. But it’s old news now. HMDA just carries that same definition carries over for 2017.
4. Business or Commercial Purpose (Same test applies)
As discussed in previous newsletters, the question of whether a loan is exempt from ATR/QM or TRID as a “business-purpose” is the same test that applies to determine whether we report it as “business-purpose” on the new HMDA LAR.
5. NMLS #
What do we report on the application, Loan Estimate, etc. as the NMLS when there are multiple originators? A good question back when we implemented Reg Z, but now copy/paste that guidance from your TILA procedures into your HMDA procedures for this item.
Where HMDA Differs from TRID
These are items where, while it may be frustrating, new HMDA requirements do NOT follow along with recent CFPB regulations and instead adopt new definitions.
1. Application Date
This isn’t anything new, but the HMDA definition of “application” will continue to be different than that same word as defined by Reg Z. The CFPB declined to simplify things by adopting the same definition.
Quick refresher – Reg Z has a strict definition of application that is based on collection of 6 pieces of information. HMDA, on the other hand, has a watery definition for “application”, that depends on the lender’s own procedures.
Bottom Line – the application date you’re using to monitor compliance with Reg Z cannot be relied upon for HMDA.
2. Loan Purpose
As the chart below shows – the new HMDA rule adopts a completely new set of “Loan Purpose” rules and definitions. Better make sure a “Construction” loan (as disclosed on TRID) isn’t carrying over to your HMDA records as such, that doesn’t even exist as a loan purpose on HMDA!
3. Product Type
Same story here.
Yeah, I know I know… Send complaints to someone else. But the fact is, this is another term that HMDA still defines differently from something used in TILA.
Major differences between how TILA and HMDA define “dwelling” include:
A building with more than 4 units can be a dwelling for HMDA purposes, but not under TILA
Under HMDA, mobile homes, boats, trailers, campers, etc. cannot be “dwellings.” This isn’t the case with TILA- where any one of those vehicles could be a “dwelling” if used as a residence .
In Other News
Looking for some incentive to put some work in at the gym? Check out this guy’s website – his company provides Navy Seal training to civilians. And even if you don’t join, the website is full of interesting and helpful stuff.
Is everybody else already familiar with the FDIC’s national survey of unbanked and underbanked households? I guess I never really noticed it .. but it’s full of some interesting information. For example, page 3 of the executive summary (link above), it lists the most common reasons for consumers not having a bank account:
Not enough money
Avoiding bank for privacy
Don’t trust banks
Nice plain language cyber-security article available here. Great opening line too – “Did you know that the first known use of the term ‘cybersecurity’ was in 1989?”
On My Mind …
People criticize millennials for an unwillingness to work their way from the bottom up, for wanting the corner office by the end of their first year. But I wonder whether this is more common than just with millennials, or whether this- or something similar- is common with persons across age groups and even companies.
Is a salesman successful the first day on the job? Or does it take time to first build a loyal referral base? How often are you sold a product or a service and ultimately feel it falls short of advertised expectations?
Is this building towards a “build it and they will come – not vice versa” kind of moment? ….
Yes! (see below)
“[T]he majority of people operate with the mindset that says to the fireplace, ‘First give me some heat, then I’ll throw on some logs.’ Or that says to the bank, ‘Give me interest on my money, then I’ll make a deposit.’ Of course, it just doesn’t work that way.” – Bob Burg and John David Mann, in their book The Go-Giver.
Thank you to Ben Giumarra, Spillane Consulting Associates, Inc., a member of our Education Committee, who with the support of other experts at SCA have put together this newsletter.