Article By: Gregg Oberg, Spillane Consulting Associates, Inc.
Habits that served us well in the past may hurt us after regulatory change.
Getting HMDA Wrong? It’s All About the Habits …
Experience is typically viewed as a positive trait, particularly in highly repetitive operations such as mortgage originations. So much so that I’ve always viewed my lack of “Old HMDA” experience as a glaring hole in my knowledge. Those who have reported HMDA transactions for years often know their institution’s procedures, the regulators’ expectations, and all the “tricks of the trade” necessary to make HMDA a breeze. Let’s be honest—how often are procedures looked by employees once employees are trained to follow them?
Management and Compliance spend time creating these procedures and workflows, and often develop their own lexicon that doesn’t perfectly track the language of the rules. Terms like “purpose” can mean one of two vastly different things, whether it is “the purpose of the loan proceeds” or “business or commercial purpose.” This is OK-as the policy and procedure should be developed specific to each institution-tailored to your particular circumstances to maximize efficiency and accuracy.
But as we adapt to the new rules, experience is a double-edged sword. Most employees in the lending groups will not be HMDA experts—or experts on any specific regulation for that matter. This is typical, because we segment the workflow out and train employees on the specific aspect they will interact with.
There are Two Kinds of People
Those who have a lifetime of HMDA knowledge and experience, and those who really haven’t seen it before. This is obviously a gross oversimplification, as there are various levels of knowledge in between. But the point is that different institutions and different employees will have vastly different baseline knowledge on HMDA as we move to New HMDA.
Understanding your teams’ knowledge is step one in training them for a new rule. If HMDA has not been a major part (or any part) of their jobs in the past—commercial lenders for example—why bother spending time teaching them how New HMDA modifies Old HMDA?
On the flip side, there are some “sneaky” changes in New HMDA that employees who feel confident in their HMDA abilities (Worst. Superpower. Ever.) should be made aware of.
The New Waterfall
I’ve seen many extremely experienced individuals trip up on this point. Loan Purpose under New HMDA has been revamped, and contains a fair amount of complexity—particularly when we get into multi-purpose loans.
Under the old rules, when you had a multi-purpose loan, Home Purchase “trumped” Home Improvement, which “trumped” refinance.
Under the new rules, we now have six potential purpose codes, and must pick the appropriate one. To make things worse, the ORDER has changed.
Not Applicable (used for purchased loans)
This is one of those areas where training needs to be carefully tailored to the pre-existing knowledge your employees possess. Have they been tasked with making Loan Purpose determinations in the past? If not, don’t confuse them by explaining how the new waterfall is different from the old one. If they are, then spend more time than you think is necessary explaining how this has changed.
Ideally (in my humble opinion), workflow aids should develop a “muscle memory” type habits in employees to whom the workflow is applicable. However, these habits can cause major problems when the rules fundamentally change.
For old HMDA, some of these habits included:
Treating “business purpose” transactions as not reportable by default
Requesting GMI/ADI improperly
Ignoring “second lien” transactions for HMDA
Treatment of HELOCs
Determining the proper Loan Purpose on a Multi-Purpose Loan
Really any other assumption on what is or is not reportable on HMDAs
Now that the changes have come to pass, we’re starting to see some discrepancies between the old and new which can trip up experienced LOs, UWs, and others involved in the collection, recording, and reporting of HMDA data. The question becomes “how do we effectively identify and re-train employees on the contradictory points?” Give us a call, we’re happy to help. But if you choose to go it alone, be sure you first understand the baseline knowledge your staff possesses.
Stop me if you’ve heard this story before … The government is shutting down (again)? Whether a new spending bill will pass before the 12:01 AM Saturday deadline remains to be seen. How might this affect us? The CFPB will NOT be affected, as their funding comes from the Fed Reserve. However, agencies who get their funding from congress, such as HUD, are planning for furlough. Check out an analysis of HUD’s most recent Contingency Plan (2011) for government shutdowns.
Follow the leader … as soon as we figure out who that is. Any rumors related to the future of Mick Mulvaney are greatly exaggerated, as the fight goes back to the D.C. Circuit. English files Notice of Appeal, requesting expedited treatment, stating that “the Bureau’s employees, the companies it regulates, and millions of American consumers will continue to suffer under a cloud of disruptive legal uncertainty.”
More servicing opportunity for smaller institutions? Fitch Ratings’ most recent report indicates a drop in top servicers’ (by volume) market share for mortgage servicing. Check out a rundown of the top servicers and their volume drops.
Mortgage Rates for Jan 16, 2018 plus lock recommendations. We post this source and other news daily on Twitter, so follow us @SCA_Spillane for up to date news.
**These are our opinions. We’re not authorized, or willing, to express those of others.**
Thank you to Gregg Oberg, Spillane Consulting Associates, Inc., who with the support of other experts at SCA have put together this newsletter.