This week, the Consumer Financial Protection Bureau (CFPB) announced it is issuing a request for information (RFI) to assess the effectiveness of the 2015 Home Mortgage Disclosure Act (HMDA) rule and related amendments. HMDA is the federal disclosure law that requires covered mortgage lenders to periodically file information about the demographics of the people applying for and receiving mortgage loans with the lender, as well as information about the terms of the loans that are approved. The information allows federal regulators, fair lending advocates and the public to monitor whether mortgage lenders are discriminating in the manner they select borrowers and offer mortgage products.
The CFPB’s decision to take a closer look at the effectiveness of the current HMDA rule and its amendments is worthwhile and important. However, the CFPB can also take more immediate action. In particular, the CFPB should take steps to rescind its 2020 amendment which raised the minimum threshold for determining which mortgage lenders are required to make disclosures. In its 2020 amendment, the CFPB increased the minimum threshold for mortgage lenders required to disclose information from 25 to 100 for closed-end loans and from 100 to 200 loans for open-end mortgage loans. Closed-end loans, such as 30-year fixed mortgage loans, have a specific date for paying off the principal and interest owed on the mortgage. Open-end loans, such as equity line loans, do not.
The problem with the CFPB’s 2020 amendment is that it significantly reduced the number of banks and mortgage companies that were required to make disclosures. For example, after the 2020 amendment to the rule, an additional 40% of banks, mortgage companies and credit unions across the country were not required to report their closed-end mortgage data because they no longer met the minimum threshold for disclosure. These mortgage lenders can do business with little to no scrutiny of whether their lending practices are discriminatory. The 2020 amendment also resulted in reducing the number of lenders reporting and the amount of information about lending in rural communities. By virtue of the fact that lenders doing business in rural areas frequently make fewer loans than lenders in urban areas, a disproportionate share of lenders making loans in rural communities do not meet the threshold. As a consequence, there will be little to no ability to determine if there is mortgage discrimination in rural areas.
In addition to the CFPB’s raising the threshold for reporting, Congress made a harmful change to HMDA data. Under the Economic Growth, Regulatory Relief and Consumer Protection Act of 2018, Congress significantly reduced the data points smaller volume lenders making under 500 loans had to report. These lenders will not have to report credit score, reasons for denial, total loan costs including fees and origination charges, discount points, the presence of a prepayment penalty, loan-to-value ratio, loan term, introductory rate period, non-amortizing features, property value as well as many of the details relating to the type of property, channel, and other information related to how the loan was underwritten. These factors are necessary for many types of fair lending investigations and their absence will create a regulatory vacuum in many communities. The CFPB cannot undo this change by itself but could opine about its impact.
Given the major defects in the 2020 amendment, on July 30, 2020, NCRC, several fair housing non-profits and the City of Toledo filed a federal complaint against the CFPB challenging the agency’s 2020 amendment to the HMDA rule. We challenged the HMDA rule because the CFPB did not adequately justify raising the disclosure minimum thresholds, and relied on conclusions that were directly contradictory to those it made in 2015, when it explained in detail why lower thresholds made more sense. NCRC and its co-plaintiffs took this action to ensure that mortgage lending would not take place in the dark, free from public scrutiny. While we await a final decision in that case, nothing stops the CFPB from beginning the process to rescind the amendment and restore the lower minimum thresholds in the earlier 2015 HMDA rule. There is already enough evidence on the record for the CFPB to take action to restore the 2015 thresholds for reporting.
The CFPB’s request for information this week is a promising first step, but the agency should complete the work to implement the Congressionally-mandated requirements for a HMDA that will shed light on lending activity in all communities and with the robust data points that the public needs to investigate financial institutions for fair lending concerns.
Brad Blower is NCRC’s General Counsel.