UI Urges CFPB, Don’t Limit Access to Loan Information

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The Urban Institute (UI) is urging the Consumer Financial Protection Bureau
(CFPB) to rethink its plans for Home Mortgage Disclosure Act (HMDA) reporting. The
HMDA, passed in 1975, requires many financial institutions to maintain, report,
and publicly disclose loan-level information about mortgages. According to
CFPB, the data “help show whether lenders are serving the housing needs of
their communities; they give public officials information that helps them make
decisions and policies; and they shed light on lending patterns that could be
discriminatory.” 

In an
article on the UI Urban Wire blog,
researchers Laurie Goodman and Ellen
Seidman say the HMDA data is the nation’s most complete record of mortgage origination
activity. It helps industry experts and researchers gauge market activity by
lender, geography, and race or ethnicity. This helps them assess credit
availability, the riskiness of the market, potential discrimination, and the
need for public and private investment in housing.  Further, the data is free, public, and highly
reliable and deepens the collective understanding of the market, making it more
efficient and enabling informed policymaking.

In 2015 CFPB
published a rule implementing changes in the HMDA made through the Dodd-Frank
Act, but now the bureau is proposing two items that UI says could substantially
curtail availability of HMDA data.  The first
is a Notice of Proposed Rulemaking (NPRM) that would raise the threshold number
of loans an institution makes before required to report to anyone, including
regulators, under the HMDA.  The second
is an Advanced Notice of Proposed Rulemaking (ANPR) that might eliminate much
of the data specifically added in response to the abuses and subsequent
disaster of the early 2000s.

The NPRM would raise the reporting threshold
on closed-end loans for banks and nonbanks from 25 loans in either of the
previous two years to either 50 or 100 loans (alternative proposals). CFPB
estimates the 100-loan proposal would save each exempted institution less than
$5,000 per year. For open-ended loans like Home Equity Lines the current 500-loan
threshold would be extended through 2021 then reduced to 200 rather than the 100
loans in the 2015 rule.

Increasing the closed-loan threshold
to 50 would allow 759 institutions (1,718 at a 100-loan level) to go dark on
mortgage origination reporting. By 2022, 681 out of 1,014 institutions would go
dark on open-ended loans.
 UI calls this “a
serious loss of insight on a market vital to the health of the economy;
regulators failed to fully understand the importance of these loans and the
role they played leading up to the 2008 financial crisis.”

CFPB’s 2015 Rule expanded the number
of data points used to track the abuses which triggered the housing crisis and
the new rule could substantially weaken those effects. Goodman and Seidman say
it’s hard to see how the loss of this information, along with the resulting
loss of market efficiency and policymaking awareness, is worth the small
reduction in cost for those institutions that will be exempted.  This is especially concerning as banks have
just implemented the 2015 Rule.

The authors call the ANPR proposals,
which would apply to all HMDA reporters, potentially more troubling than the NPRM,
pointed to three specific issues.


  • Data on manufactured housing will be
    curtailed.
    The CFPB says lenders found it burdensome to report information on
    whether a manufactured home sets on owned or leased land. However, UI research
    shows that as many as 60-70 percent of borrowers who purchased a manufactured
    home using a chattel loan (a loan not secured by real property) might have been
    eligible for a mortgage or real estate loan.
    The latter is substantially less expensive and has exponentially more
    consumer protections.

These
numbers are approximations as this data was not covered prior to the 2015 rule
and could be more reliably studied with the leased/owned data. It would also
assist the GSEs goal under their Duty to Serve obligations of expanding lending
to manufactured housing.

  • The ANPR also proposes, based on
    anonymous “stakeholder feedback,” to eliminate the open-format description,
    implemented by the 2015 Rule, of why a loan was denied. The previous format
    provided a checklist with an open format for “other.” Reasons for loan denial
    are critically important and UI suggests CFPB should analyze the 2018 HMDA
    filings and including the most common free-form text responses as choices
    instead.
  • The ANPR seeks comments on excluding
    business or commercial loans made to a non-natural person and secured by a
    multifamily structure from HMDA reporting. UI says multifamily lending is
    essential to HMDA purposes, especially for rental properties. The data enabled
    UI to show that multifamily lending was being used disproportionately to fulfill
    banks’ Community Reinvestment Act (CRA) requirements and was much more
    concentrated than single-family lending.
  • Goodman and Seidman say the proposed
    rule essentially does what the agency refused to do in 2015, excluding
    reporting on the large numbers of multi-family loans made to business entities such
    as limited liability corporations. “Monitoring
    whether these lenders are serving low- and moderate-income tracts, as well as
    better-off tracts, is critically important,” they say.

Much of the data required by the
2015 Rule is collected by banks for other regulatory purposes, although not in
a standard format.  The lack of HMDA
inclusion would make it more difficult for both examiners and the public to view
individual institutions and to compare among them as to their activity in
providing loans to low- to moderate-income areas or otherwise serving their
communities. To the extent that there are data fields (beyond those the CFPB
has already exempted) that are irrelevant or excessively burdensome for
multifamily lenders, the solution is to exempt additional fields, not the
entire category of loans.

The authors
also point to the comment periods for the two notices, calling them “unnecessarily
short;”
30 days for the NPRM and 60 for the ANPRM.  CFPB should institute a longer comment period
for the NPRM and show cause for the proposed change rather than putting the
burden on the public to demonstrate why the rule shouldn’t be changed. “As the
CFPB itself admits, the HMDA is a public disclosure statute. If disclosure is
the purpose of the statute, the burden of proof must be on those who wish to
curtail it.”

They conclude that HMDA reporting
can and should be improved, but the answer isn’t to collect less information,
it is to collect information more intelligently. Reducing the information will
reduce the collective understanding of this critical market, making it less
efficient and making policymaking more speculative. No one, they say, should
want that outcome.

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