In the midst of the COVID-19 pandemic, some good news for financial institutions arrived on April 16, 2020, from the Consumer Financial Protection Bureau (CFPB) in the form of final reporting thresholds for the Home Mortgage Disclosure Act (HMDA). Under HMDA, financial institutions are required to maintain, report and publicly disclose loan-level information about dwelling secured loans and applications.
HMDA reporting has been a long and winding road for financial institutions, starting with the initial publication of HMDA changes back in 2015. As yesterday’s final rule notes, the 2015 HMDA rule set the closed-end threshold at 25 loans in each of the two preceding calendar years, and the open-end threshold at 100 open-end lines of credit in each of the two preceding calendar years. In 2017, before those thresholds took effect, 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, CFPB extended the temporary threshold of 500 open-end lines of credit for open-end coverage to January 1, 2022. This final rule impacts the collection and reporting thresholds for closed-end and open-end credit, which will have a positive impact on many smaller filers/institutions.
Increased reporting threshold for closed-end mortgage loans
Effective July 1, 2020, the final rule amends HMDA to increase the permanent threshold for collecting and reporting data on closed-end mortgage loans from 25 to 100 originated loans. This will significantly reduce the number of smaller filers who are originating fewer than 100 closed-end HMDA reportable loans.
So what does that mean for institutions that had to file in 2020, with less than 100 originated closed-end mortgage loans? Institutions should continue to collect HMDA data through July 1, 2020, but can stop collecting data after that date. It is important to note that Government Monitoring Information is not a requirement exclusive to HMDA, and institutions should continue to collect such information in instances required by the Equal Credit Opportunity Act.
Increased reporting threshold for open-end lines of credit
The final rule also amends HMDA to increase the permanent threshold for collecting and reporting data about open-end lines of credit from 100 to 200, effective January 1, 2022, when the current temporary threshold of 500 of open-end lines of credit expires. This particular aspect of the rule is disappointing as many institutions grew accustomed to the temporary 500 line threshold and were able to take advantage of excluding open-end lines of credit from their loan application registers. While this is a substantial decrease from the 500 originated lines, smaller filers will be able to benefit here as well, especially if they are close to originating more than 100 open-end lines of credit.
Institutions with open-end line of credit volume in excess of 200 originated lines, who are not already collecting HMDA data information on open-end lines of credit, will want to begin implementing procedures to do so for the 2021 calendar year.
How to record first quarter 2020 data
After four months of collecting data, there’s a light at the end of the tunnel. Data collected in the first quarter of 2020 should be recorded on a loan/application register no later than 30 calendar days after the end of the quarter. The institution need not record second quarter information on the loan/application register.
Institutions enjoying the benefit of the increased threshold may voluntarily report on March 1, 2021, but only if they include the entirety of 2020 calendar year data. Institutions should not voluntarily report if they do not continue to collect information through the entire 2020 calendar year and should not submit the loan application register for just the first quarter.
These permanent threshold adjustments are expected to bring some much-needed relief to HMDA reporting burdens, particularly for smaller financial institutions. As the CFPB anticipates, this final rule, once effective, will reduce regulatory burden on smaller institutions to help those institutions to focus on responding to consumers in need now and in the longer term. For additional guidance and commentary, see the summary and the final HMDA rule.
RKL’s Financial Services team includes compliance experts who can help banks and credit unions adopt the new HMDA thresholds. Contact your RKL advisor to start the conversation.