CFPB Proposes Off-Balanced Approach to Public Disclosure of HMDA Data

In October 2015, the CFPB adopted significant changes to the rules under the Home Mortgage Disclosure Act (HMDA). Among the changes, items of information to be collected and reported are greatly expanded, with some items specified by Congress in the Dodd-Frank Act and others added by the CFPB. The CFPB is now proposing policy guidance on what application-level information will be disclosed to the public. The comment deadline is November 24, 2017.

Currently, institutions that report HMDA data must publicly disclose their HMDA data on an application-level basis. HMDA requires the modification of data released to the public “for the purpose of protecting the privacy interests of mortgage applicants.” Currently, before disclosing application-level data, institutions remove the application or loan number, the date the application was received, and the date the institution took final action on the application. However, there are concerns that by combining the current publicly available HMDA data with other data sources, the identity of each applicant can be determined. As the applicant’s income is one data item that is publicly disclosed, there is a concern that the income of individual applicants can be determined.

Going forward, institutions will report HMDA data to the CFPB, and the CFPB will disclose HMDA data publicly, including application-level data for each institution. The significant expansion of HMDA data under the October 2015 revisions raised consumer privacy and related concerns about public disclosure. New data items include the applicant’s age, income (which is currently reported), credit score, and debt-to-income ratio; automated underwriting results; the property address; loan cost information; and, for denied applications, the principal denial reasons.

When the CFPB adopted the October 2015 revisions, it deferred a decision on which elements of the expanded HMDA data would be reported on an application-level basis. However, the CFPB indicated that it would use a balancing test to decide what information to disclose publicly, and would allow public input on the information that it proposed to disclose. The CFPB advised that “[c]onsidering the public disclosure of HMDA data as a whole, applicant and borrower privacy interests arise under the balancing test only where the disclosure of HMDA data may both substantially facilitate the identification of an applicant or borrower in the data and disclose information about the applicant or borrower that is not otherwise public and may be harmful or sensitive.”

The CFPB proposes to make all of the HMDA data available to the public on an application-level basis, except as follows:

  • The following information would not be disclosed to the public (non-disclosure of the first three items is consistent with current disclosure practices):
    • Universal loan identifier.
    • Date the application was received or the date shown on the application form (whichever was reported).
    • Date of the action taken on the application.
    • Property address.
    • Credit score(s).
    • NMLS identifier for the mortgage loan originator.
    • Automated underwriting system result.
  • The free form text fields for the following (the standard fields reported would be disclosed):
    • Applicant’s race and ethnicity.
    • Name and version of the credit scoring model.
    • Principal reason(s) for denial.
    • Automated underwriting system name.
  • The CFPB proposes to disclose, in a modified format, the loan amount, age of applicant, applicant’s debt-to-income ratio, and property value.
    • For the loan amount, the CFPB proposes to disclose:
      • The midpoint for the $10,000 interval into which the reported value falls, such as $115,000 for amounts of $110,000 to less than $120,000. (Currently, the loan amount is reported to the nearest $1,000.)
      • Whether the reported loan amount exceeds the Fannie Mae and Freddie Mac conforming loan limit.
    • For the age of the applicant, the CFPB proposes to disclose:
      • Ages of applicants in the following ranges: Under 25, 25 to 34, 35 to 44, 45 to 54, 55 to 64, 65 to 74, and over 74.
      • Whether the reported age is 62 or over. For purposes of the Equal Credit Opportunity Act, a person is considered elderly if they are age 62 or over.
    • For the debt-to-income ratio, the CFPB proposes to disclose:
      • The reported debt-to-income ratio for reported values of 40% to less than 50%, and other debt-to-income ratios in the following ranges: under 20%, 20% to less than 30%, 30% to less than 40%, 50% to less than 60%, and 60% or higher.
    • For the property value, the CFPB proposes to disclose the midpoint for the $10,000 interval into which the reported value falls, such as $115,000 for amounts of $110,000 to less than $120,000.

Although the loan amount will now be reported in the applicable $10,000 interval and not to the nearest $1,000, the concern is that the totality of the publicly available information will make it easier to determine the applicant's identity. Thus, under the CFPB's proposal, there is a risk that a significant amount of information that consumers view as confidential will become publicly available. As a result, the CFPB will likely face intense criticism of its balancing of the privacy needs of consumers with the disclosure of HMDA data.

Additionally, because the increase in the amount of HMDA data elements means that the CFPB will now store highly confidential consumer information records, data security concerns must be considered. The CFPB rebuffed data security concerns raised by parties commenting on the proposed HMDA data expansion, stating that the agency “has analyzed these industry comments carefully and has determined that any risks to applicant and borrower privacy created by the compilation and reporting of the data required under the final rule are justified by the benefits of the data in light of HMDA’s purposes even though its data security has been cited as being deficient.” While the CFPB was referring to a Government Accountability Office report finding issues with CFPB data security, as we have reported previously on several occasions, the CFPB’s own Office of Inspector General has found deficiencies in CFPB data security. (See here, here, and here.)

One must wonder why the CFPB views the collection and disclosure of expansive HMDA information as being more important than addressing privacy and data security risks to consumers. 

- Richard J. Andreano, Jr.

CFPB Finalizes Alignment of Regulations B and C on Consumer Ethnicity and Race Information

On September 21, the CFPB finalized its proposal to amend Regulation B requirements related to collection of consumer ethnicity and race information, in order to resolve the differences between Regulation B and revised Regulation C (the Final Rule). The Final Rule is effective on January 1, 2018, the same effective date as for most of the 2015 Home Mortgage Disclosure Act (HMDA) Final Rule. The amendment removing the existing “Uniform Residential Loan Application” form is effective January 1, 2022.

Generally, the amendments set forth in the Final Rule are being adopted as proposed. The Final Rule institutes four primary changes to Regulation B:

  1. Applicant Information Collection for Regulation B Creditors. The Final Rule gives persons who collect and retain race and ethnicity information in compliance with Regulation B the option of permitting applicants to self-identify using the disaggregated race and ethnicity categories required by the 2015 HMDA Final Rule. Aligning these rules allows HMDA-reporting entities to comply with Regulation B without further action, while entities that do not report under HMDA but record and retain race and ethnicity data under Regulation B may either use existing aggregated categories or the new disaggregated race and ethnicity categories. The flexibility may be helpful for institutions that move in and out of being a HMDA reporting entity.

  2. Applicant Information Collection for HMDA Reporters. The Final Rule allows creditors to collect ethnicity, race, and sex information from mortgage applicants in certain cases where the creditor is not required to report under HMDA and Regulation C, including creditors that submit HMDA data even though not required to do so, and creditors that submitted HMDA data in any of the preceding five calendar years. This change also may benefit institutions that move in and out of being a HMDA reporting entity, and institutions that may be uncertain about their reporting status.

  3. Regulation B Model Forms. The Final Rule removes the outdated 2004 Uniform Residential Loan Application (URLA) as a model form, and provides a new, one-page data collection model form that can be used to collect the revised HMDA demographic data until the 2016 URLA prepared by Freddie Mac and Fannie Mae is implemented. As we reported previously, last year the CFPB added the 2016 URLA as a model form to Regulation B.

  4. Voluntary Collection Authorizations. The Final Rule authorizes a financial institution that is subject to only (1) the requirement to report closed-end loans, to voluntarily report home equity lines of credit (HELOCs), and (2) the requirement to report HELOCs, to voluntarily report closed-end loans. Moreover, the CFPB is adopting two recommendations from industry commenters that were not contained in the proposed rule. First, a financial institution may collect applicant demographic information for dwelling-secured business loans that are not reportable because the loans are not for the purposes of home purchase, refinancing, or home improvement. Second, the Final Rule permits, but does not require, creditors to collect applicant demographic information from a second or additional co-applicant. The HMDA rule requires the collection of the information for the applicant and first co-applicant.

- Pavitra Bacon


Additional Guidance From HUD/Freddie/Fannie/Ginnie/VA on Mortgage-Related Disaster Relief for Hurricane Victims

In addition to the guidance regarding Hurricane Harvey disaster relief, the housing agencies and government-sponsored enterprises recently addressed the mortgage-related relief available to victims of both Hurricane Harvey and Hurricane Irma in declared disaster areas. Click here for a summary of these announcements.

- Pavitra Bacon


DID YOU KNOW?

D.C. and California Issue Student Loan Servicing Regulations, Join Other States in Migrating Licenses to NMLS

As we reported last month, the District of Columbia Department of Insurance, Securities and Banking (DISB) started accepting applications and transition filings for the Student Loan Servicer License on the Nationwide Mortgage Licensing System (NMLS) on August 10, 2017. After nearly a month of accepting Student Loan Servicer License applications, the Commissioner released a Notice of Emergency and Proposed Rulemaking to implement the Student Loan Ombudsman Establishment and Servicing Regulation Amendment Act of 2016. The Student Loan Servicer emergency rules were adopted and made effective on September 8, 2017. In addition, we have been informed by the DISB that Charles Burt was appointed as the Student Loan Ombudsman this past summer. For more information about the rules, please see our full coverage here.

In California, the Department of Business Oversight (DBO) has released proposed regulations pursuant to the state’s 2016 Student Loan Servicing Act. Among others, the regulations propose that the Student Loan Servicer License will be administered through the Nationwide Mortgage Licensing System (NMLS) as well. The Act and final regulations will become effective on July 1, 2018. For more information about the proposed regulations, please see our full coverage here.

A summary of the D.C. and California student loan servicing regulations can be found here.

- Wendy T. Novotne


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