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The Ever Changing Landscape of Mortgage
Lending
HMDA & The New URLA
Casey ReynoldsQuality Response Manager, Pulte Mortgage, LLC
Josh WeinbergEVP Compliance, First Choice Loan Services Inc.
Jerra H. Ryan, CML SVP Compliance, First Choice Loan Services Inc.
October 11, 2016
Change is inevitable…
….Misery is optional
Those who adapt…Succeed!
ECOAEqual Credit Opportunity Act
&
FHAFair Housing Act
Promote fair lending and equal access to credit for all creditworthy customers without regard to any prohibited basis:
• Race• Color• Religion• National Origin• Sex• Marital Status• Age (ECOA only)• Receipt of income from public assistance (ECOA only)• The exercise of any right under the Consumer Credit Protection Act (ECOA only)• Family Status (Fair Housing Act only)• Handicap (Fair Housing Act only)• Sexual Orientation (Fair Housing Act only)
ECOA Requirements
• ECOA impacts all states of the loan process, including:
• Advertising
• Applicant Interview
• Application
• Credit Investigation
• Risk Decision Making
• ECOA requires
• Notice of Action Taken
• Collecting information about race, ethnicity and gender
• Record retention
• Providing applicant(s) with free copies of all appraisals and written valuations used in connection with the loan
HMDAHome Mortgage Disclosure Act
• A measurement of ‘fair lending’
• How lenders are serving the housing needs of the neighborhoods and communities where they are located
• Requires “data reporting”
• The collection, disclosure and reporting of data about applicant and borrower from applications with a credit decision by the creditor to assist in identifying possible discriminatory lending patterns and enforcing anti-discrimination statutes
If HMDA asked Curly’s Question….
The Answer Would Be….
HMDA + New URLA• Today
• Borrower’s choose • I do not wish to furnish this
information—applies to all or some of the GMI
• Ethnicity • Hispanic or Latino• Not Hispanic or Latino
• Race• American Indian or Alaska
Native• Native Hawaiian or Other
Pacific Islander• Asian• Black or African American• White
• Next….• Borrower’s may choose to
furnish some or all Gender, Ethnicity or Race in each section
• Hispanic or Latino Ethnicity will include Origin
• Mexican, Puerto Rican, Cuban • or the ability for the applicant
to write in other origins
• Race will include ‘disaggregated’ fields
• Enrolled tribe• Chinese, Korean, etc.• Guamanian, Samoan, etc.• or the ability to write in other
race
URLA
TheUniform Residential Loan Application
Redesigned
Why Now?
• It has been over 20 years since any material change was made to the URLA
Then Now
Why Now?
• It has been over 20 years since any material change was made to the URLA
Then Now
Why Now?
• It has been over 20 years since any material change was made to the URLA
Then Now
Familiar Style
• Similar design and style compared to the Loan Estimate and Closing
Disclosure
• A similar approach to design including profession design and
consumer tested
• Clear instructions to enable borrower self-service
• Updated fields to support current business model while removing
obsolete fields
• Focus on enhanced data quality
How Many Pages Is The New URLA?
• 5, 7, 9, 13?
• The Answer = It Depends
• Separate Borrower and Lender
Sections
• The new URLA is dynamic
• How is it dynamic?
Expands and Collapses based on the
information entered into the application
Dynamic Fields
• Borrower
• “Does Not Apply”
• Present Address Field
• Employers, Income Type, Assets, and Properties
• Drop Downs
• Calculations
What’s Gone?
• Years in School
• Street Address of Banking Institution (Assets)
• Automobiles Owned
What Was Left Out?
• Language Preference
Industry Outreach
Compliance and legal concern over lack of federal rules
surrounding Limited English Proficiency
Creating expectations that can’t be met
Potential increased cost associated with both origination
and servicing
Redesigned URLA Overview
Borrower URLA – Section 1a
Borrower URLA – Section 1b
Borrower URLA – Section 1e
22
Borrower URLA – Sections 2a and 2b
23
Borrower URLA – Sections 2c and 2d
Borrower URLA – Section 3a
Borrower URLA – Sections 4a and 4b
Borrower URLA – Section 4d
Government Monitoring Information
Lender URLA – Section L1
Lender URLA – Section L2
Lender URLA – Section L3
When Can We Use the Redesigned URLA?• According to FNMA and FHLMC the effective date is January
2018. Why?
• CFPB announcement September, 23, 2016
• FNMA and FHLMC Update
Changes to LOS
Changes to Business Process
Changes to AUS
Stay Tuned
• Demographic Information of Borrower
CFPB Guidance
Additional Guidance from FNMA and FHLMC
Potentially put an X or “Shade Out” to GMI information on
current loan application
Add the Demographic Information Addendum for New URLA
HMDA : Timing
CFPB Resources: consumerfinance.gov/regulatory-implementation/
HMDA : From The Source
Almost Everything!
New Covered Transactions: HELOCs & Reverse Mortgages
Additional Data Reported: More on this later, but…•Applicant & UW – Age, Credit Score, DTI, AUS Findings, Denial Reason, QM Status
•Property Info – Construction method, value, lien position, units, manufactured
•Loan Info – Loan type, points & fees, pricing, term, rate/intro period, non-amortizing
•Unique Identifiers – Universal Loan Identifier, property address, NMLS info
Changes to the institutions that report • Fewer banks, savings banks, and credit unions will be required to report • More non-depository institutions will be covered
Uniform loan-volume test—in each of the two preceding calendar years, the institution originated either:
• At least 25 closed-end mortgage loans; or • At least 100 open-end lines of credit
Reporting• Institutions will report their data to the Bureau, starting in 2018
Disclosure • Institutions will no longer be required to provide their disclosure statement or modified
loan/application register to the public • Instead, the Bureau will disclose this information on behalf of each reporting institutions • The Bureau is now conducting an analysis of what data will be disclosed, and will seek public
feedback in the future
HMDA : What’s Changing?
One Data Set, Multiple Places• Source, Scrubbing, and Reported Data / Documents
System Updates, Customization, and Release Coordination
Support Historic and Current Data• In Different Data Formats (.DAT or .CSV vs. MISMO, or Pipeline Delimited)• Reverse Compatibility
Files in other Systems or Different Lines of Business• Reverse Mortgages, HELOCs, etc.• TPO, Assumptions, Multi-Family
Challenges and Considerations• GIGO – Industry Data Quality is Not Great• Timing – “Real Life” Testing Difficult without updated releases, and/or Submission
Portal Information• Fee Hokey Pokey vs. Data Driven examination – When Docs And Data Don’t Match
Collaboration – Critical. Time is Ticking! Vendors with CFPB, LOS, Lender
Who’s ULI and What Are They Doing With LEI?!
HMDA : Technology Dependent
The Universal Loan Identifier (ULI) is created by joining your Legal Entity Identifier (LEI), an internal loan number, and a check digit sequence to create a 45 character string. The internal loan number may use numeric or alphanumeric characters.
The LEI is a unique, 20-digit alphanumeric identifier associated with a single legal entity and is intended to serve as a uniform international standard for identifying participants in financial transactions.
• Already in use in many countries to track financial activities• Mandated in the US for money funds and derivatives reporting• Based on ISO standard17442
Where do I get one?https://www.gmeiutility.org/
HMDA : ULI & LEI
Some Detail Without Getting Into the Weeds…
We Already Know About TRID, URLA, HMDA, so here’s a few more:
UCD (No It Doesn’t Stand for UC Denver!) - Uniform Closing Dataset• An ongoing effort by Fannie Mae and Freddie Mac
to provide a common industry dataset to support the CD.
• Required for all loans delivered to the GSEs with a Note Date on or after Sept. 25, 2017.
• Currently Requires Alt LE/CD on Refinances
Regulatory Alphabet Soup
LEP - Limited English Proficiency• 9/15/16 - HUD GC “disparate treatment and
discriminatory effects apply in Fair Housing Act cases…the link between national origin and LEP is fairly intuitive.”
• “…refusing to allow an LEP borrower to have mortgage documents translated, or refusing to provide the borrower with translated documents that the lender or mortgage broker has readily available, is likely not necessary to achieve a substantial, legitimate, nondiscriminatory interest. Likewise, restricting a borrower’s use of an interpreter, or requiring that an English speaker cosign a mortgage, likely will not prove justifiable. Some states require that if negotiations for a mortgage are conducted in a non-English language, certain mortgage documents must also be provided in that language.54 Avoiding compliance with a state consumer protection law would not be considered a substantial, legitimate, nondiscriminatory interest that would justify refusing to serve LEP borrowers.”
APA: Administrative Procedures Act vs. Regulation by Enforcement• Section 8 and PHH• ECOA Safe Harbor for HMDA Expanded GMI Early
Regulatory Alphabet Soup
HMDA – Plus: What is it?
Since HMDA was originally enacted, it has shifted from monitoring and preventing redlining to a Fair Lending tool used by regulators. This trajectory is likely to continue under the new changes
Break
HMDA Implementation Data Through Examples
HMDA Data Point
• Data Point Changes
New Rule = 48 Data Points
Current = 23 (20 are modified)
New = 25
One data point may involve numerous fields
Data Point Categories - Before
• Pricing Elements
Rate Spread (only if above threshold) - HOEPA Status
• Underwriting Elements
Action Taken/Date - Reasons for Denial (optional) - Income -
Type of Purchaser
• Loan Features
Loan Type - Loan Purpose - Loan Amount
• Property Elements
Property Type - Occupancy Type - Lien Status - Property Location
• App/Company Elements
Application Date - Application/Loan Number - Reporter ID
Preapproval Request - Race, Ethnicity, Sex
Data Point Categories - After
• Pricing Elements
Rate Spread (all) - Origination Charges - Lender Credits - Total Loan Costs/Points & Fees - Discount Points - Interest Rate - HOEPA Status
• Underwriting Elements
Action Taken/Date - Reasons for Denial (required) - Income - Debt Ratio - Type of Purchaser - Credit Score - AUS - CLTV
• Loan Features
Loan Type - Loan Purpose - Loan Amount - Loan Term - Business or Commercial Purpose - Reverse - Open-End Line of Credit - Prepayment Penalty Term -Introductory Rate Period - Non-Amortizing Loan Features
• Property Elements
Construction Method - Occupancy Type - Lien Status - Property Location -Property Address - Property Value - Manufactured Home Secured Property Type -Manufactured Home Land Property Interest - Multifamily Affordable Units - Total Units
• App/Company Elements
Application Date - Universal Loan Identifier - Legal Entity Identifier - Preapproval Request - Race, Ethnicity, Sex - Age - Application Channel - MLO NMLSR ID
Data Through Examples
• Things to think about during implementation:
Dual Tracking
Historical Loan Data
Business Processes
Income Example• Income – Section 1003.4(a)(10)(iii)
Existing Data Point If credit decision is made, gross annual income relied on in making the
credit decision; or, if a credit decision was not made, the gross annual income relied on in processing the application
• Borrower who is retired qualifies for a mortgage with social security income of $2,500 per month. Due to lack of other income sources and substantial borrower assets the financial institution uses either an annuitized income or depletion of assets in the amount of $2,500 per month. The borrower’s total income relied on for the credit decision was $5,000 per month.
• What does the lender report for income relied on? $2,500 - Reportable income does not include funds or amounts in addition
to income, such as funds derived from annuitization or depletion of an applicant’s assets, even if the Financial Institution relied on them when making the credit decision.
Property Value
• Property Value – 1003.4(a)(28) New Data Point Value of the property relied on that secures the loan. Reported for originated, denied and approved not accepted. “Not Applicable” is reported for an action taken of withdrawn or
closed for incompleteness prior to a credit decision (even when an appraisal has been obtained).
• A financial institution originates a purchase transaction in February 2018 with the following characteristics: $250,000 Appraised Value $245,000 Sales Price
• What property value is reported?
• What if the contract reflects a $7,000 sales concession?
Interest Rate
• Interest Rate - 1003.4(a)(28)
New Data Point
Action taken types that do require a financial institution to report
interest rate include:
Approved but not accepted
Closed loans
• Approved But Not Accepted
From the Rule: Requires a financial institution to report the
applicable interest rate only if the application has been approved
by the financial institution but not accepted by the borrower. In
such cases, a financial institution reports the interest rate
applicable at the time that the application was approved by the
financial institution.
Interest Rate
Approved But Not Accepted Example:
Initial Disclosure – Initial Rate Set – 6/1/16 – 3.75%
Rate Lock - 6/15/16 – 3.75%
Loan received final approval 6/20/16 - 3.75%
Borrower Decides to Buy Down Rate – 6/22/16 – 3.5%
Reported Interest Rate based on 6/15/16 – 3.75%
Rate Spread
• Rate Spread - 1003.4(a)(28)
Modified Field - Previous requirement was to report the
rate spread on a 1st lien if the rate spread was over 1.5
percentage points. Report the rate spread on a 2nd lien if
the rate spread was over 3.5 percentage points.
Otherwise this field was reported as NA. Previous rule
was on closed loans only.
The new HMDA rule requires you to report the rate spread
regardless of the amount on closed loans and loans that
are approved but not accepted.
The APR vs the APOR the day the interest rate was set.
Rate Spread
• Financial Institution needs to determine the rate set date for
the final time before closing or account opening.
What day was the loan locked
Long term lock with float down option
Lock agreement was extended but the rate was not re-set
Change in program after rate lock
Rate Spread
• Loan locks 6/1/16
Borrower extends lock 6/30/2016 with a 7 day extension and the rate does not change
APOR table applicable as of 6/30/16
APR disclosed on CD
• Loan locks 8/15/16 – Conventional Financing
Change in product and lock 8/25/16 to FHA financing
APOR table depends on company policy and whether it is applied consistently. If updated interest rate is based on 8/15 pricing sheet then use that date for the APOR. If rate is based on price sheet of 8/25 then use that date for the APOR. If company is not consistent on how they apply this rule then use the 8/25 date.
APR disclosed on CD
Loan Purpose
• Loan Purpose – 1003.4(a)(3)
Modified Data Point
Current Rule: Home Purchase, Home Improvement, Refinancing, Multifamily Dwelling
New Rule: allows for Home Purchase, Home Improvement, Refinancing, Cash-Out Refinancing and Other Purpose
Loan Purpose
• Borrower owns 123 Main St. free and clear. Borrower wants to buy 456 Downing St. Borrower obtained a loan against 123 Main St. for $350,000 in order to purchase the new property.
What is the loan purpose?
According to the FNMA Selling Guide this would be considered a cash-out refinance
According to HMDA this is considered a purchase
According to TRID this is a Home Equity
Implementation Considerations – Updates and Revisions• Board / Senior Management Awareness and
Involvement• Policies and Procedures – Definition of Application,
etc.,• Training Materials• Compliance Monitoring / Independent Audit Updates
Project Management Approach• Identify Implementation Team• Automation / Customization Reviewed and Rewritten• Comparative Gap Analysis• Test, Test, and Test Again
Some Good News:• Submission Portal – Should be Significantly Improved• Help is Available – CMLA, MBA• MISMO – Mentioned over 50 times in the Rule
HMDA Implementation: Operational Impact
MISMO
There are two types of companies in the mortgage industry – Those who use
MISMO and know it, and those who use MISMO and don’t!
MISMO is a bridge providing an on-ramp for many institutions to participate in the larger ecosystem of the mortgage process. By using a unified and consistent standard, they are able to execute their business idea or strategy into the larger mortgage process because MISMO really is the language of mortgage.
The creation of the MISMO standard is voluntary, butits use has become compulsory.
If you’re going to do business in today’smortgage world, you’re going to use MISMO.
MISMO – The Language of Mortgage
HMDA Implementation: Proof Reading Is Important
Data Quality (especially HMDA) Sets Tone for Examination
• Bad Data = Bad Exam, Weak CMS, Fair Lending Risk
• Data Quality = Shorter Exam, Evidence of CMS, Accurate Fair Lending
Assessment
If You Can’t Explain It and Show Your Work, Only aMiracle Will Avoid Exam and Regulatory Problems!
Once Errors Are Identified, Correct Them And Get Guidance On If And What to Self-Report, As Well As How to Address During Examination.
HMDA Implementation: An Ounce of Prevention
URLA Implementation
URLA Implementation
URLA - Change Management
• Requires coordinated effort between all stakeholders
• All processes and updates require adequate time and resources
• (hint: now is a little late to be getting started!)
• Create and plot strategy, objectives, timeline
• Look Back—what lessons can be learned from TRID implementation?
• Coordinate Implementation with HMDA Implementation
URLA Implementation Strategy
Assess Impact & Develop Business Strategy
• Business Channels –
• retail, wholesale, correspondent, consumer direct
• Departments impacted
• Stakeholders
• Users
• Supporters
• Investor requirements or changes
• Cross-project management with new HMDA implementation
• Senior / Executive Leadership engagement, buy-in, support
Bridge the Gap = Opportunity!
Identify Gaps
• What are the existing functionalities compared to any new requirements
• Borrower vs. Additional Borrower
• Any changes to on-line applications
• Is On-Line App “TRID Compliant” (requested vs. required info/sequencing)
• Does Policy identify when you have a RESPA 6 if Borrower and Additional Borrower submit at different times?
• Will changes trigger new or increased responsibility for any job function now
• Bridge your gaps
• Technology
• Process
• Vendor Management and Analysis
• LOS, Doc Prep, AUS, Credit Reporting, etc.
Business Requirements• Policies and Procedures
• Training • Completing the new URLA
• On-line, Telephone, Face-to-Face• Use of “N/A”, Military, Gifts & Grants
• Staged Implementation of GMI information for 2017 applications with “Action Taken” in 2018
• Implications of 9/23/16 CFPB “Approval” to used expanded and disaggregated race and ethnicity information identified by applicant(s)
• As with HMDA, there may be training challenges with regard to land loans, loans to trusts/non-naturalized persons, and data ‘relied on’
• Scripts—develop scripts for production to use with applicants
• Limited English Proficiency – Spanish versions for “assistance in completing” the URLA – watch state-specific rules for loan applications taken or terms & conditions negotiated in foreign language
• Presumptive Close for GMI for telephone or face-to-face applications…
Scripts and Training
• Completing the “One Thing”…aka Government Monitoring Information• Choose Not to Provide
• Race & Ethnicity• Understanding
disaggregated ethnicity ‘origins’ and race self-identified by applicant
• Face to Face (visual observation/surname but category level only)
Testing
• On-line Apps
• LOS
• Mapping
• Data Capture
• Documents – how do they look?
• Soft-Release/Testing
• What better way to test the ease of use or ability to understand:
• Engage your production teams
• Engage your consumers
Go Live
• Support for people
• Contract support while others deployed for ‘go live’?
• On-call for originators and production teams
• Identify the Subject Matter Experts
• Provide adequate support and sufficient resources to the SME!
• System Controls – “initial” manual review of URLA’s
• Ongoing Monitoring of change across organization, from origination through investor delivery
You Got This!
Contact Information_________________________________________________________________________________________________________________________________________________________________________________________________________________________
Josh Weinberg(732) [email protected]
Jerra H. Ryan(303) [email protected]
Casey Reynolds(303) [email protected]
October 11, 2016
