Revised HMDA Reporting Overview, Implementation and Planning March - - PowerPoint PPT Presentation

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Revised HMDA Reporting

Overview, Implementation and Planning

March 2017

Kathy Keller, Managing Director, Regulatory Compliance, Newbold Advisors, LLC

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Agenda

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Overview of the New HMDA Reporting Requirements

§

Implementation Considerations

§

Planning for the Change

§

Summary and Q&A

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Overview of the New HMDA Reporting Requirements

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Overview

The Revised HMDA reporting changes impact more than data. It changes the who, what, how & when of HMDA reporting over the course of 4 years…

The change is significant. Your company should be well on its way to implementation by now.

WHY? WHO? WHAT? HOW? WHEN?

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Overview – Why and Who

WHY?

• Avoid regulatory action and the bad press that comes with it.
• Dodd Frank dictates and CFPB desires more information around access to

mortgage credit to create transparency for borrowers and accountability for lenders.

• Regulators will use the data to enforce fair lending laws such as the prohibition
• n disparate impact.

WHO?

• 2017 - Scope of covered institutions has narrowed - A bank, savings

association, or credit union will not report unless it meets the asset-size, location, federally related, and loan activity tests under current Regulation C and it originates at least 25 home purchase loans, including refinances, in both 2015 and 2016.

• 2018 - New standard test is primarily volume based. Must report if at least 25

covered closed-end mortgage loans or at least 100 covered open-end lines of credit in each of the two preceding calendar years.

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Overview – What and How

WHAT?

• “Dwelling” secured transactions
• In scope: Closed end loans, open ended equity lines of credit, reverse

mortgages, chattel, multifamily.

• Out of scope: Unsecured home improvement loans and agricultural loans.
• Preapprovals
• Used to be optional…in 2018, home purchase preapprovals not accepted will be

required.

• Additional and Changed Data
• Legal Entity Indicator and Universal Loan Identifier.
• Demographic data
• Significant amount of additional new data beyond demographic including: credit

score, AUS version, ULI, property value, application channel, points and fees,

• rigination fees, MLO number etc.
• Changes to definition of some current data.

HOW?

• CFPB implementing a new reporting tool that will use a new LAR file specification

standard for reporting. Pipe-delimited versus comma-delimited.

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Overview - When

Jan 2017 Jan 2018 Jan 2019 Jan 2020

• Institutional

Coverage Test Changes; Some small entities will no longer report

2

Report Old Data to New Tool (new pipe delimited file format)

4

Report New Data to New Tool

5

Quarterly Reporting Starts for Larger Institutions

1

For loans that start in 2017 that have a “Last Action Date” in 2018, the new data set is reportable except for new demographic information (GMI). CFPB will allow for collection of the new demographic data, however, it is not required to be reported. Must have strategy for dual tracking for these loans as it will not be clear under which rule they will be reported.

3

Begin Collection of New Data Set Including New Demographic Information

WHEN?

• The rule is implemented over 4 years. It is critical to ensure that your plans

consider these milestones.

• The plan must consider multiple deliveries of capability.
• There are 5 key milestones.

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Revised HMDA Data

Application/ Loan Information Applicant Info Underwriting Information Loan Features/ Pricing Property Information Identifiers Existing

• Application

Date,

• Loan Type
• Income
• HOEPA Status
• Property Location

Modified

• Loan Purpose
• Preapproval
• Loan Amount
• Reason for

Denial

• Action

Taken/Date

• Ethnicity
• Race
• Sex
• Rate Spread
• Type of Purchaser
• Lien Status
• Construction

Method,

• Occupancy Type
• Legal

Entity Identifier

• Universal

Loan Identifier New

• Application

Channel

• Reverse

Mortgage

• Open-end,

Business

• Business or

Commercial Purpose

• Age
• Credit Score
• DTI Ratio
• Combined

LTV Ratio

• AUS

(relied upon test)

• Loan Term
• Total Loan Costs or Points

and Fees

• Origination Charges
• Discount Points
• Lender Credits
• Interest Rate
• Prepayment Penalty Term
• Introductory Rate Period
• Non-Amortizing Features
• Property Address
• Property Value
• Manufactured

Home and Chattel Info (Property Type and Land Property Interest)

• Total Units
• Multifamily

Affordable Units

• MLO

Identifier

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General Data Considerations

• Evaluate every data point, even those noted as “Not Changed”
• Be wary of “Updated” data points. Does your organization use them for other

purposes? It might necessitate creating a new data element for HMDA reporting.

• For “New” data points, do you already have them in your systems? Is your

definition consistent with the HMDA definition?

• Conditionality creates implementation complexity. Ensure data required for

conditionality is available and high quality.

• Understand any workarounds you have implemented in your environment and

their impact to data.

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Implementation Considerations

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HMDA Implementation Considerations

Rule Analysis Analyze the rule to understand it and its impact on your institution’s business model. PROCESS

Transactional Business Process HMDA Data Reporting Process

TECHNOLOGY

Transactional Business Process HMDA Data Reporting Process

DATA

Quality Controls Fair Lending Trends

ORGANIZATION

Training Communication

All regulatory changes require assessment across 4 domains: Process, Systems, Data, Organization. The new HMDA rule is no different. It is not just about data.

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CONSIDERATIONS - PROCESS

Not intended to be a complete list

PROCESS

Transactional Business Process

• How is data collected and modified through the business processes? Origination? Servicing? Secondary?
• What are the implications of a new definition of an existing data element to the business process?
• Are there additional data controls or QC required in the business processes?
• What 3rd parties are creating/changing data? Brokers? Correspondents? Where is the credit decision made?
• What does the ULI mean for your business process? What are the downstream impacts on loan sales and purchased loans?
• How will data collection be managed during the dual tracking period when it is unclear how the loan will be reported?
• Will you collect the new demographic information early? If so, will you report it?
• What policy decisions are required? How will your firm define “relied upon”?

HMDA Reporting Process

• What new data sourcing is required?
• What data scrubbing enhancements are needed? Where will those be done?
• How will the file format be created? 2017…2018?
• What 3rd party vendors are involved? How are they planning to make the change?
• What policies and procedures will require updating?

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Considerations - Systems

Not intended to be a complete list

SYSTEMS Transactional Systems

• What are the data sources for the new data that are required? HELOCS? Do they have all the data needed?
• Does the modification of existing elements definition have an impact on how data will be managed in your systems?
• What is the impact on upstream and downstream systems? Will reports break?
• Are additional automated data controls needed?
• Are 3rd party system vendor tools affected? How are they planning to handle specific issues like the free form

entries and relied upon test?

• How will the ULI flow through systems? How does it affect purchased loans?

HMDA Reporting System

• What system changes are required to aggregate new data? Where will that aggregation take place?
• Are there additional systems that need to be integrated into the data aggregation process?
• Is there a need for additional automated data scrubbing prior to submission? Where will that be done?
• How will the file format be created? 2017…2018?
• Will third party vendor tools require change?

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Considerations – Data and Organization

Not intended to be a complete list

DATA Data Quality

• What is the quality of the current data that will be in the new data set? Does quality vary by product type…by channel?
• Do you have a handle on the conditional data required to select the data set? What is it’s quality?
• What additional controls might be needed either in transaction or data reporting process to control quality?

Fair Lending Data Assessment

• Is there anything in your company’s current data that when aggregated might raise a fair lending concern?
• Are there credit policy and/or process issues that need to be reviewed and/or changed?
• What needs to be done to remediate any issues?

ORGANIZATION (COMMUNICATION & TRAINING IN THIS CASE)

• What communications are necessary? Internal/External?
• Publications? On line training? Webinars?
• Vendor supplied? Help desk?
• Loan Officer and other organizational training?

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Planning for the Change

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Prepare and Plan

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Program Planning

• Identify Work Streams and

Create HMDA Implementation Roadmap Including Projects and Dependencies (Internal/External)

• Include all key milestones
• Assess Resource Needs
• Get Vendor Plans
• Stand up PMO

Data Assessment

• Assess New Reportable Data for Data Quality,

Controls and Lending Patterns

• Determine Data Remediation Activities
• Identify System Changes to Support Data

Collection

HMDA Implementation Plan

Process and System Assessment

• Current State Process, Transactional and

Regulatory Reporting Processes

• Identification of Policy, Process and Procedure

Changes Required for HMDA Data Collection and Reporting.

• Identify System Changes required to Support

Process

• Identify communication and training needs

Planning is key to a successful implementation. It is important your plan consider all 5 key milestones

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HMDA Process and Systems Implications Across the Mortgage Process

Originations

Secondary/Capital Markets Servicing HMDA Compliance and Reporting

• ULI assignment
• Preapprovals not accepted for home purchases
• Policy for “relied upon test”
• Open ended lines of credit
• Modified definitions and impact on downstream

systems and reports

• Where is data collected and change through

process

• Data quality and controls
• QC process changes
• LOS Vendor Plans
• Loan Officer training
• ULI on loan sales
• Additional data elements on loan

sales

• ULI assignment on loans

purchased from a non-reporter or

• riginated pre Jan 1, 2018,
• Collection of additional data on

purchased loans for HMDA reporting

• Onboarding and storing ULI
• Validation of ULI for

purchased loans

• Storage of data for

purchased loans

• Assumptions
• HMDA data reporting tool and vendor plans for change
• Will HMDA data reporting tool handle conditionality or will LOS handle it?
• Pricing data represents a significant portion of revised HMDA reporting? What are fair lending implications?
• Loan Officer’s NMLS number is reportable? What are your lending patterns?

Transaction Processes HMDA Reporting Process

Impacts Needs to Assessed Across the Mortgage Value Chain.

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HMDA Pre-Implementation Data Analysis

Mortgage LOS

HMDA Data Integrity Gaps Data “Staging” Tool Proxy revised HMDA data set for analysis High Level Fair Lending Analysis Remediation Activities

Mortgage LOS

• Retail POS
• Retail LOS
• HELOC LOS
• HECM LOS
• Correspondent

LOS

• Wholesale LOS
• Other

Servicing System(s)

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Data Assessment

Due to expansion of the data set, more systems will likely be involved. Perform as many data integrity and fair lending based assessments of your data as possible now.

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Product

Closed End Loan Reverse Mortgage Open End Line of Credit

Disposition (Last Action Taken)

Purchased/ Repurchased Loan Loan Acquisition Actual UPB Amount Reverse Initial Principal Limit Amount HELOC Maximum Balance Amount Loan Assumed Assumed Loan Amount Loan Originated Note Amount Pre-approval or Application Denied Borrower Requested Loan Amount Pre- approval or Application Not Accepted Application Withdrawn or Incomplete

Loan Amount

• n

HMDA LAR

Process and Data Complexities What to Report – Example Loan Amount

Conditionality Rules will need to be implemented to select the correct values for certain data elements.

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High Level HMDA Plan and Milestones Through 2020

2016 2017 2018 2019 2020

Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Scoping /Planning Data Management Policy Changes Process Assessment Technology Changes Procedure Changes Communication and Training

Data Collection Data Reporting

• 1. Collect

New Data Set with

• r without

New Demographic Info

• 2. Collect

With New Demographic Info

• 3. New Pipe

Delimited File for 2017 HMDA

• 4. Full Data Set

Reporting for 2018 HMDA

• 5. Quarterly

Reporting for 2019 HMDA

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Revised HMDA Reporting Project Plan Considerations

Your plan should be detailed and clearly identify work streams, resources/stakeholders, milestones/tollgates, dependencies and deliverables. The more complex your business model, the more complex your plan.

Include deliverables Establish work streams and teams Include multiple sub projects for each system Ensure adequate time is allowed for testing w/third party vendors Consider timeframe requirements for upstream & downstream parties

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Scoping and Planning

Key Activities

• Rule Analysis and Impact

Assessment

• 3rd Party Vendor

Planning

• Plan Development and

Resourcing

• ULI Structure Analysis
• Stand Up Project

Organization

• The bulk of this work will

be done upfront in your plan but will be adjusted for each milestone.

Considerations

• Consider not only what products and business lines you currently have.

Consider future products and business lines as well.

• Review end to end business process to assess impact. Include all process

participants.

• Get your vendor’s plans and align your milestones.
• Consider system customizations to determine if they create additional work.
• Plan for time of subject matter experts.
• Consider backfill for people who are diverted to implementation.
• Employ temporary help to either implement or backfill.
• Develop your ULI structure and ensure it meets the rule requirements.
• Identify policy decisions that will need to be made. Identify differences

between HMDA and TRID (definition of application); HMDA and Agency rules (example Loan Purpose)

• Plan for dual tracking period. How will that be handled?
• Decide whether or not your organization will collect new demographic

information early and, if so, will it be reported. Plan accordingly.

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Data Management

Considerations

• Ensure new data is assessed and issues remediate BEFORE the collection

period starts.

• Remember that the collection period for all new data except for the new

demographic information will start sometime in 2017 due to “last action taken date.” Determine your organization’s data collection readiness date.

• Review data for all products and all channels.
• Understand the conditionality that drives what data is used for HMDA.

Depends on product and point in process loan fell out, as well as, other criteria.

• Inspect the data required beyond the reportable data set. There is

additional data required for conditionality.

• Remember that changing definitions of data may create complexity and

could affect upstream and downstream processes.

• Ensure data is not being changed outside of the source of HMDA data.

Test to ensure you know your systems of record.

• Consider using the MISMO HMDA standard for data aggregation.

Key Activities

• Gather Current Data (to

extent possible)

• Data Quality Analysis
• Fair Lending Analysis
• Identify remediation work
• Assign to appropriate work

stream

• Remediate
• This work will be ongoing for

the entire HMDA implementation

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Process Assessment

Key Activities

• Operational Process Assessment
• Originations
• Servicing
• HMDA Reporting Process

Assessment

• Identify and Categorize Changes

Needed

• Assign to appropriate work stream

Considerations

• Must be an early activity to drive out changes needed as soon as
• possible. Changes will be need to be integrated into all work streams;

policy, procedure, systems, data.

• HMDA Data Reporting process must consider dual pathing for

transition period.

• Consider all channels, all products.
• Consider what changes your organization might be considering while

HMDA is being implemented.

• Assess the impact of the URLA on your process. Watch the agencies

schedules to determine which form you will be going live on the addendum or the URLA.

• Identify where business decisions are needed and likely policy

statements to document them. For example, definition of agricultural

• property. Relied upon test.
• This work will be need to be reflected in the plan for each milestone

though size and scope of work will vary per depending on the milestone.

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Policy and Procedure Updates

Key Activities

Policy Changes Policy Review and Impact Assessment Make Changes Approval Process Procedure Changes Policy Review and Impact Assessment Changes Approval Process

Considerations

• Process work will drive some of this out but a bottom up review of policy and

procedure will also be helpful to ensure everything has been caught.

• Ensure enough time is allowed for approval processes for policy and

procedure revisions.

• Ensure the ULI is covered in your policies and procedures.
• Remember readiness for collection date is sometime in 2017 depending on

your business model.

• System changes need to be done before procedures can be finalized

Ensure your plans accommodate this.

• There are some items in the rule left to lender discretion. Work with your

counsel to ensure that those decisions are clearly documented and reflected in policy and procedure. Do this early in your plan to allow time for procedures and systems changes to align.

• This work will be need to be reflected in the plan for each milestone though

size and scope of work will vary per depending on the milestone.

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Technology Changes

Considerations

• Must plan for each system impacted.
• Ensure enough time for UAT of all affected systems.
• Ensure time for end to end testing of process.
• Align development of new pipe-delimited file to January 1st submission

timeline for 2017 data.

• Decide whether leveraging MISMO makes sense for your organization.
• Get plans from your vendors as soon as possible. Ask for a review of

their implementation approach to ensure it works with your business model.

• Consider impact of customization of systems your company has done.

May need to unwind some customizations. Try not to implement new

• nes for HMDA.
• Plan for how ULI will flow through your systems. Don’t forget about

servicing systems

• If you don’t use a HMDA reporting system, now is the time to think about

using one.

• This work will be need to be reflected in the plan for each milestone

though size and scope of work will vary per depending on the milestone.

Key Activities

Loan Origination Systems (for each LOS involved)

• Requirements
• Development (internal or 3rd party)
• User Acceptance Testing
• Deployment

Servicing Systems

• Same System Development Lifecycle
• Look specifically at assumptions, purchased

loans and ULI issues HMDA Reporting Systems

• Same System Development Lifecycle
• Understand where conditionality logic occurs.
• Plan for two integration tests to CFPB tool.

End to End Integrated Test

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Communication and Training/Readiness

Considerations

Communication and Training

• Ensure Loan Officers are trained in new HMDA data

collection rule and procedures.

• Ensure branch personnel understand new disclosure

notices

• Plan time for approval of training and distribution processes.
• Consider privacy implications of the HMDA data and train

appropriately. Readiness

• Ensure milestones are aligned with all involved.
• Ensure communication is provided to all who need to know

both internal and external

Key Activities

Communication and Training

• Identify Training Needs
• Create Training
• Approval Process
• Administer Training
• Develop Disclosure Notices
• Distribute Disclosure Notices

Readiness

• Ensure everyone is ready to deploy when

the time comes: Operations, Systems, Data, Vendors, Partners

• Go/No Go decision will occur at a few

points in the plan.

• Plan for readiness reviews at each key

implementation milestone

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Summary

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Aggressive (Little resource contention, very limited integration, low complexity of environment) Conservative (Significant resource contention, higher level of integration and complexity) Number of Weeks 1/1/2018 is from 3/3/2017 Estimate of Elapsed Weeks 66 102 Contingency 6 6 Total Weeks Required 72 108 43

• The elapsed totals assume concurrent work with appropriate staffing levels.
• Every company is different, however few companies will be able to support the aggressive estimate given other

work and priorities.

• Plans should allow contingency time and not run right up to the rule implementation date.
• 3rd Party Vendor plans should be vetted in detail up front and allow ample time for UAT.
• There are several interim milestones that are required & need to be planned in the detailed work plans.

Is your organization well on its way to implementation? Is there a clear plan and communicated plan?

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Questions?

My contact information:

Kathleen Keller Managing Director, Regulatory Compliance Support kkeller@newboldadvisors.com 571 -918-1011