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HMDA data collection builds issues for banks

By Roger Beverage
OBA President and CEO

    Jan. 1, 2018, is a date that might go down in history or live in infamy. It's the date the provisions of a revised Regulation C go into effect. 

    For traditional community banks, there are some pitfalls – or minefields as I prefer to think about them.  The new reporting requirements will dramatically increase your bank's data collection and reporting activities.  It will also increase costs for your customers.

    Admittedly, I'm not much of a detail person. I don't get down in the trenches and deal with details like making sure data fields are correctly identified and completed. But even someone like me can appreciate what these proposed changes are likely to mean to banks in general, and to traditional community banks in particular. 

    In the beginning, HMDA reporting was intended to determine if banks were engaging in any form of lending that might be in violation of anti-discrimination laws. It was also intended to demonstrate how banks were serving the housing needs in the community/communities in which they operate.  

    Fair enough. That makes sense. But the problem – once again – is the rules governing data collection requirements under HMDA regulations operate as if all banks and all mortgage lending operations are the same. They are not.

    Under these proposed revisions, there are 110 new data fields that must be addressed for each mortgage. As I understand it, many of these data collection requirements are new, and virtually double your bank's data collection requirements.  

    But wait ... there's more!

    Last month, the CFPB published a Request for Information that asks various audiences for feedback that will help develop the Bureau's new regulations governing business lending.  The intent is for the Bureau to (finally) issue regulations on business lending activities, based on the authority given through Sec. 1071. 

    Section 1071 of Dodd-Frank is intended to “facilitate enforcement of fair lending laws and enable communities, governmental entities, and creditors to identify business and community development needs and
opportunities of women-owned, minority-owned and small businesses.”   

    What that means for you and your bank is that your bank must “inquire whether the business is a women-owned, minority-owned, or small business, without regard to whether such application is received in person, by mail, by telephone, by electronic mail or other form of electronic transmission, or by any other means, and whether or not such application is in response to a solicitation by the financial institution.”

    Your bank is also required to “maintain a record of the responses to such inquiry, separate from the application and accompanying information.”

    The point: You will be required to track and report loan applications made by women-owned, minority-owned and small businesses.

    So – why am I concerned? There are lots of reasons, but one primary reason is because these additional revisions are going to cause even more community banks to get out of the mortgage lending business. When that happens, Oklahoma consumers will have even fewer choices than they do now, and those choices are likely to cost more.

    And even if individual banks continue to offer mortgages, these new requirements are going to increase consumer costs.  How dumb is that? 

    Even the CFPB doesn't appear to understand the basic problem with nonsensical regulatory requirements: It's the customer, stupid! Consumers end up paying the additional cost. Consumers end up being further inconvenienced. Consumers end up blaming the banks for screwing up their loan applications.

    We already have an issue in Oklahoma because some 40 percent of the banks in the state have dropped these products from their offerings. These new reporting requirements are going to increase that percentage, perhaps dramatically, and I think it will have more of an impact in rural areas where the number of banks and branches are limited.

    Here's another thing that is perhaps the most dangerous “mine” in the whole package of revisions: These enhanced data collection requirements dramatically increase the chances of making a mistake. That should be obvious. 

    What's not obvious – and it's something I hadn't thought about until my friend Brad Swickey opened my eyes to it – is if the CFPB will review these reports and, when they find an error as is inevitably the case, guess what? The Bureau will then have a reason to come into your bank and go through it with a fine-tooth comb, Dodd-Frank's “intent” to “exempt” community banks from the reach of the CFPB notwithstanding. The fact your bank is under $10 billion, or $100 million makes no difference. 

    I see that as a problem.  A “biggun” as they say in some parts of our state. 

    Let me know what you think. 


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