CFPB Amends HDMA Rule to Bring Relief to Smaller Lenders

The Consumer Financial Protection Bureau (CFPB) issued a final rule on April 16, 2020, that may help relieve Home Mortgage Disclosure Act (HMDA) reporting obligations under Regulation C for certain financial institutions.

Effective July 1, 2020, the final rule amends Regulation C to increase the permanent loan-volume coverage threshold for collecting and reporting data on closed-end mortgages from 25 to 100, thereby eliminating these requirements for many smaller lenders. In addition, effective January 1, 2022, the final rule reduces the loan-volume threshold for open-end lines of credit from 500 to 200.

An organization is required to comply with HDMA reporting requirements if it is a “financial institution” as defined in Regulation C §1003.2(g). A financial institution can be defined as either a depository financial institution or a non-depository financial institution. Institutional coverage tests list the criteria that must be met in order to be deemed a financial institution under Regulation C:

The Institutional coverage tests for both depository and non-depository financial institutions include Loan-Volume Threshold. The Loan-Volume Threshold sets volume criteria for both closed-end and open-end mortgage loans that the financial institution originated and is the same for both depository and non-depository financial institutions. However, when determining loan volume, remember to consider which transactions may be excluded per Regulation C §1003.3(c).

Closed-end mortgage loan threshold

The 2015 HMDA Rule set the closed-end threshold at 25 closed-end mortgage loans in each of the two preceding calendar years. For example, if a financial institution originated less than 25 closed-end loans in 2018 and 2019, it was excluded from the requirement to report closed-end mortgage loans on their 2020 HMDA loan application register (LAR).

The final rule permanently raises the closed-end coverage threshold, for both depository and non-depository financial institutions, to 100 closed-end mortgage loans.

Newly excluded financial institutions

The timing of the rule effective date poses questions for affected financial institutions. Primarily, how will this change impact financial institutions for 2020 reporting who are required to report closed-end loans under the current threshold of 25, but will be excluded from reporting under the new threshold of 100? The CFPB’s “Executive Summary of the 2020 Home Mortgage Disclosure Act (Regulation C) Final Rule” addresses this question.

• Newly excluded financial institutions can stop collecting HMDA data on their closed-end mortgage loans beginning on the final rule effective date of July 1, 2020.
• Newly excluded financial institutions will not be required to record closed-end data for the second quarter of 2020 because the deadline for recording that data, 30 calendar days after the end of the quarter, is after July 1, 2020. However, newly excluded financial institutions are still required to record their closed-end data for the first quarter of 2020.
• Lastly, the final rule relieves newly excluded financial institutions from the obligation to report closed-end mortgage loan data collected in 2020 by the March, 1, 2021, deadline. (This includes data collected in 2020 before the final rule effective date of July 1, 2020.) If the newly excluded financial institution chooses to, it may voluntarily report their closed-end mortgage loan HMDA data in 2021, however, the HMDA data reported must be for the full 2020 calendar year.

Open-end mortgage loan threshold

In 2017, the CFPB temporarily increased the open-end threshold to 500 open-end lines of credit for two years (calendar years 2018 and 2019). In October 2019, the CFPB extended the temporary threshold of 500 open-end lines of credit to January 1, 2022.

The final rule sets the permanent open-end threshold at 200 open-end lines of credit, once the temporary threshold expires on January 1, 2022. This means starting in January 2022, if a financial institution originates fewer than 200 open-end lines of credit in each of the previous two calendar years, it will be excluded from the requirements to report open-end lines of credit on their HMDA LAR.

If you have any other questions about how these changes may affect your financial institution, contact a member of Kaufman Rossin’s risk advisory services team.