May 30, 2015

The CFPB Wants More Information About Mortgage Loans. Guess Who's Going to Collect It.

As you may know, the Consumer Financial Protection Bureau collects data from mortgage lenders about mortgage loans. It is currently attempting to dramatically expand the scope of information that mortgage lenders are required to provide to it.  
The Home Mortgage Disclosure Act (HMDA, or, as I like to call it, "Hmm Duh") was enacted in 1975 and the Federal Reserve Board was given rulemaking authority (through which it authored Reg. C) until July 21, 2011, when the Dodd-Frank Act transferred that authority to the CFPB. HMDA requires lending institutions to report certain mortgage loan data. The Dodd-Frank Act also directed the CFPB to expand the HMDA dataset to include additional information about loans that would be helpful to better understand aspects of the mortgage market.  
The CFPB proposed changes to the data that mortgage lenders are required to collect and report was proposed in July of last year. (That proposal was 572 pages--svelt by CFPB standards.)  The proposal went well beyond what the Dodd-Frank Act required. The comment period ended in October, and we are now awaiting the final rules. Here's what the proposal entails:
More Loans
Regulation C currently uses a “purpose” test to determine whether a mortgage loan transaction must be reported. Loans made to purchase, refinance, or improve a home are covered. The proposed rule would require that covered lenders report, with some exceptions, all loans secured by dwellings. "Dwelling" isn't limited to primary residence—it includes vacation homes, multi-family, and rentals. home equity lines of credit  (HELOCs), which were not previously always covered unless the use of proceeds related to the home, will always be covered if the proposed rule is adopted.
Higher Reporting Threshold
Currently, Regulation C requires banks to submit HMDA data even if they make only one home loan in a given year; however, the proposal would set a 25 loan threshold. For purposes of counting the threshold, only closed-end loans (including reverse mortgages)--not HELOCs--are counted. 
New Information
The proposed rule would add not only the 17 new data fields called for by Dodd-Frank, but also 20 additional fields that the CFPB believes are necessary to help it monitor the marketplace. 
The new information required by the Dodd-Frank Act includes, for example:
  • the property value; 
  • term of the loan; 
  • total points and fees; 
  • rate spread;
  • the duration of any teaser or introductory interest rates;
  • prepayment penalties;
  • bonamortizing features;
  • loan officer number;
  • the applicant’s or borrower’s age; 
  • credit score;
  • application channel (retail or broker)
The CFPB's additional 20 fields include the following:
  • applicant’s debt-to-income ratio
  • loan-to-value ration (LTV)
  • the automated underwriting system used
  • the reason for denial (currently optional) 
  • Qualified Mortgage (QM) status
  • the interest rate of the loan, and 
  • the total discount points charged for the loan
  • fees 
  • certain property information
  • manufactured housing data
All of this is ostensibly to allow CFPB to see how the mortgage market is functioning, and specifically to determine how the "Ability to Repay" rule is affecting the market. (Although without a "before" data set, how can they know?)

Reporting Timeframe
Mortgage lenders currently report annually by March 1 for the preceding calendar year. Under the proposal, mortgage lenders that make 75,000 or more loans will have to start reporting quarterly. 
Reporting Format and Method

The proposed rule would align many of the HMDA data requirements with the widely used Mortgage Industry Standards Maintenance Organization ("MISMO") data standards, including the Uniform Loan Delivery Dataset ("ULDD") that is already used by the government-sponsored enterprises (GSEs).
The CFPB is considering creating its own web-based HMDA software that mortgage lenders would use to report their data. That sounds like a bad idea to me. (Remember how well the federal government's last big website rollout went?)
Public Disclosure
The CFPB did not state what, if any, of the new data proposed to be collected would be made available to the public. The bureau is still considering this issue.  (If the data is made a available to the public, you can bet that some special advocacy groups will be scrutinizing the data and drawing inferences from it.)

Final Rule Expected This Year.
The CFPB has not announced when the final rule will be published, but most people expect it to be this year. I have seen a prediction for July, but that seems too soon to me. There are too many details around the reporting format and method to expect a final rule this summer, given the CFPB's many other initiatives.

Fair Lending Focus

Aside from the increased burden on mortgage lenders, I predict that the primary consequence of this change will be an increase in enforcement actions against mortgage lenders.  Obviously this new data will enable CFPB and others to evaluate equal credit opportunity issues, and probably will facilitate more disparate impact type claims

May 9, 2015

The CFPB's Consumer Complaint Database Will Soon Include Consumers' Complaint Narratives. Are You Ready?

In case you missed it, the CFPB is trying to become the next Yelp or Angie's List.

The CFPB began accepting complaints from consumers as soon as it opened its doors in 2011—with over half a million currently on file.  In June of 2012, it started publishing a limited amount of data from the complaints on its website. Now, it has decided to give consumers a platform to "publicly share their stories." 

The CFPB's website already allows a consumer to describe his or her complaint in narrative form in a text box on the complaint webpage. The consumer can also attach documents to the complaint. The CFPB forwards the complaint to the company, requests a response, gives the consumer a tracking number, and updates the consumer on the status of the resolution.

In March, the CFPB revised its consumer complaint policy to allow consumers to publish their grievances—in their own words—on the CFPB's website.   Beginning later this month (May 2015), when consumers submit complaints to the CFPB, they will have the option to check a box to share their narrative. The narratives will have names, telephone numbers, account numbers, Social Security numbers, and other identifiers redacted. The CFPB will not, however, verify the truth or accuracy of the facts asserted in the consumer's complaint. 

Banks and other companies will be given the option to select from a limited list of structured response options within 180 days after the consumer complaint is routed to them. The response cannot be customized. Actually, the final policy says that the financial institution can "recommend" one of the pre-set response to the CFPB, but the CFPB reserves the right to reject the response.

Complaints will be listed in the public database only after the financial institution responds to the complaint or after it has had the complaint for 15 days, whichever comes first. The CFPB will publish the consumer complaint narrative when the financial institution provides its public-facing response, or after the financial institution has had the complaint for 60 days, whichever comes first. If, within 15 days of receiving a notice of the complaint, a financial institution tells the CFPB that it has no record of a financial relationship with the complaining person, or if the financial institution tells the CFPB that it believes the complaint is fraudulent, the CFPB is not supposed to publish the complaint.

Despite the fact that this sort of information can become stale and of marginal value over time, the CFPB has determined that complaints will remain on the public database indefinitely.  Furthermore, the final policy fails to address whether complaints will be removed or changed when a financial institution merges or is acquired, or when a division is spun out.

I have written and spoken before about the importance of online reputation management for financial institutions. This development underscores the need for each financial institution to have a comprehensive online reputation management strategy. Aside from behaving honestly and ethically, the best (but not the only) thing a financial institution can do to protect its reputation online is to inundate the web with positive content. While there are some legal concerns to address when a financial institution expands its presence on the web, this strategy is the most effective way to ensure that the overall narrative reflects the financial institution's mission and message.

Image credit: matt cordell using (x-ray delta one)