Bank Board Letter March 2014 : Page 2

ment rating may be downgraded, or worse, may be referred to the Department of Justice for civil enforcement. The third phase is in the hands of DOJ; the department may either refer the case back to the referring agency for administrative enforcement only, or initiate its own investigation, which may culminate in federal charges. The best way to avoid a fair-lending charge is to understand what risk factors the examiners are looking for and the statis-tical analysis used, and to take preventive measures to reduce an institution’s risk profile. This may include implementation of an internal fair-lending risk assessment program providing fair-lending training and conducting a review of pricing mod-els, disparity ratios and denial percentages. It is also strongly recommended that banks go beyond the basics of a risk assess-ment and perform their own regression analysis to discover and remedy inequities before an examination. In addition, the bank should consider having on hand a fair-lending allegation response and mitigation program in place. Such a response program would provide a timeline, checklist and general process for the bank to (1) initiate a request for the regression models, data and other documentation used by the agency so that the bank may attack the model’s underlying assumptions or accuracy, (2) perform its own regression analysis based on the data and models used by the agency to explain how discrepancies are caused by non-discriminatory factors, and (3) immediately engage outside experts to assist with the data analysis and to help craft a through and well-documented response that demonstrates a non-discriminatory and neutral lending practice. Joseph Porter and Michael Orlowski are attorneys with Polsinelli PC, St. Louis. They can be contacted at 314-889-8000 or by email at jporter@polsinelli.com or morlowski@polsinelli.com. CFPB CONSIDERS RULE CHANGES FOR HMDA INFORMATION C hanges to rules that establish what data financial institutions are required to provide under the Home Mortgage Disclosure Act are being considered by the Consumer Financial Protection Bureau in order to provide better in-formation about residential mortgage credit. As a next step in the rulemaking pro-cess, the bureau will convene a Small Business Review Panel, as required by the Small Business Regulatory Enforcement Fairness Act. The bureau will use the panel to seek early feedback from small lenders, including feedback on how data can be updated to better reflect what is happening in the market. Although this information would be reported to regulators, not all of it would be disclosed in the public HMDA dataset. Potential changes under consideration include: R5 '*,)0&#1f;'&#1f;(.-5 ,&#1f;+/#,&#1f;&#1e;5 &#1c;35 )&#1e;&#1e;7,&#1b;(%85 (5 ."&#1f;5 )&#1e;&#1e;7 Frank Act, including the length of the loan; total points and fees; the length of any teaser or introductory interest rates; and the applicant or borrower’s age and credit score. NEXT MONTH: %UDQFK3URÀWDELOLW\LQ'ROODUV3HU6TXDUH)RRW &ROODWHUDO9DOXDWLRQDQG'RFXPHQWDWLRQ R5 -%#(!5 ŀ(&#1b;(&#1d;#&#1b;&5 #( -stitutions to include more underwriting and pricing information, such as the interest rate, the total origination charges, and the total discount points of the loan. This will help regulators investigate the true trouble spots in the mortgage market. R5 &#1f;+/#,#(!5 #(-.#./.#)(-5 to include an explanation of rejected loan applications. The bureau is also consid-ering including whether the lender considered the loan to be a qualified mortgage. Because it can be cumbersome for lenders to collect and submit HMDA information, the bureau is comprehensively reviewing reporting requirements. The CFPB is asking for feedback on ways it can: R5&#!(5."&#1f;5&#0d;5&#1e;&#1b;.&#1b;5,&#1f;+/#,&#1f;'&#1f;(.-51#."51&#1f;&&7&#1f;-.&#1b;&#1c;&#-"&#1f;&#1e;5 data standards already in use by a significant portion of the mortgage market. The bureau anticipates that these alignments would significantly mitigate the burden on many lenders, and could improve the quality of the information reported. R5&#1f;+/#,#(!5&#1b;&&5&#1c;&#1b;(%-5&#1b;(&#1e;5()(&#1c;&#1b;(%-5A5# 5."&#1f;35'&#1f;&#1f;.5&#1d;&#1f;,.&#1b;#(5 &#1d;)(&#1e;#.#)(-5A5.)5,&#1f;*),.5# 5."&#1f;35'&#1b;%&#1f;5hk5),5'),&#1f;5&)&#1b;(-5#(5&#1b;53&#1f;&#1b;,8 R5
.,&#1f;&#1b;'&#(#(!5."&#1f;5&#1e;&#1b;.&#1b;5-/&#1c;'#--#)(5&#1b;(&#1e;5&#1f;&#1e;#.#(!5*,)&#1d;&#1f;--&#1f;-5 ),5 lenders by creating an interface that will allow lenders to con-nect their software to a CFPB intake system. A factsheet about the changes the CFPB is considering is available at http://files.consumerfinance.gov/f/201402_cfpb_ factsheet_sbrefa.pdf. Image courtesy of Alexander Raths/iStock/Thinkstock

CFPB CONSIDERS RULE CHANGES FOR HMDA INFORMATION

Changes to rules that establish what data financial institutions are required to provide under the Home Mortgage Disclosure Act are being considered by the Consumer Financial Protection Bureau in order to provide better information about residential mortgage credit. As a next step in the rule making process, the bureau w ill convene a Small Business Review Panel, as required by the Small Business Regulatory Enforcement Fairness Act.

The bureau will use the panel to seek early feedback from small lenders, including feedback on how data can be updated to better reflect what is happening in the market. Although this information would be reported to regulators, not all of it would be disclosed in the public HMDA dataset. Potential changes under consideration include:

• Improvements required by Dodd-Frank. In the Dodd- Frank Act, including the length of the loan; total points and fees; the length of any teaser or introductory interest rates; and the applicant or borrower’s age and credit score.
• Asking financial institutions to include more underwriting and pricing information, such as the interest rate, the total origination charges, and the total discount points of the loan. This w ill help regulators investigate the true trouble spots in the mortgage market.
• Requiring institutions to include an explanation of rejected loan applications. The bureau is also considering including whether the lender considered the loan to be a qualified mortgage.

Because it can be cumbersome for lenders to collect and submit HMDA information, the bureau is comprehensively reviewing reporting requirements. The CFPB is asking for feedback on ways it can:

• Align the HMDA data requirements with well-established data standards already in use by a significant portion of the mortgage market. The bureau anticipates that these alignments would significantly mitigate the burden on many lenders, and could improve the quality of the information reported.
• Requiring all banks and non banks — if they meet certain conditions — to report if they make 25 or more loans in a year.
• Streamlining the data submission and editing processes for lenders by creating an interface that will allow lenders to connect their software to a CFPB intake system.

A factsheet about the changes the CFPB is considering is available at http://files.consumerfinance.gov/f/201402_cfpb_ factsheet_sbrefa.pdf.

Read the full article at http://omagdigital.com/article/CFPB+CONSIDERS+RULE+CHANGES+FOR+HMDA+INFORMATION/1672683/203167/article.html.

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