There has been a good deal of chatter regarding the potential changes to the Consumer Financial Protection Bureau (CFPB) with the appointment of a new director, Mick Mulvaney, a known critic of the agency and how it hasconducted business. At the top of the credit union industry’s “wish list” should be amendments to the Home Mortgage Disclosure Act’s (HMDA) expansion and dissemination of private financial information that will be exposed to the public beginning in September 2019.
Aside from the concerns regarding an exponentially expanded fair lending analysis these new data points present, not to mention the potential exposure to data breaches and resulting litigation, some of this information required to be publicly disclosed (provided below), will expose confidential consumer financial information that, ifdisclosed in any other form by financial institutions, would violate Regulation P (Privacy).
On October 28, 2015, the CFPB amended Regulation C (October 2015 final rule), which implements HMDA to, among other things, expand the information that must be reported each year on the Loan/Application Register (LAR). In September 2019, submitted LAR information will be made public on the Federal Financial Institutions Examination Council’s (FFIEC) website regarding the expanded data submitted in 2018 for each mortgage lender that meets the HMDA reporting threshold requirements (which are adjusted annually).
LARs are used by the Federal government to determine whether financial institutions are serving the housing needs of consumers, whether government resources are allocated appropriately, and whether mortgage lenders are engaging in potentially discriminatory lending practices. The following information must begin to be recorded in 2018 for reporting in 2019 (provided all of the HMDA reporting threshold criteria are met):
- Universal loan number (ULI) for each loan or loan application reported;
- Date application was received;
- Number and dollar amount of insured mortgage loans, along with the issuer’s name;
- Loan purpose (i.e., home purchase, home improvement or refinancing);
- Whether the application is a request for preapproval;
- Property type;
- State, county and census tract of the property securing the loan;
- Ethnicity, rate and sex of borrowers and applicants, and how this information was determined;
- Applicant’s or borrower’s age at the time of the application;
- Property use (i.e., principal residence, second residence or investment property);
- Exact loan amount to be repaid;
- Gross annual income relied upon to process the application/make the loan decision;
- Type of purchaser (required to be on the quarterly report for institutions that meet the HMDA quarterly report threshold);
- The difference between the annual percentage rate and the average prime offer rate;
- Whether the loan is a high-cost mortgage;
- Lien status (i.e., first lien, second lien, etc.);
- Credit score of applicants and borrowers, and the name of the scoring model used;
- Up to four principal mortgage loan application denial reasons;
- Total loan costs (i.e., upfront borrower costs);
- Total origination charges;
- Total discount points paid by the borrower;
- Total amount of lender credits (for HMDA loans subject to the Regulation Z Closing Disclosure);
- The loan’s interest rate;
- The term in months of any prepayment penalty;
- The borrower’s debt-to-income (DTI) ratio relied upon in making the credit decision;
- The combined loan-to-value (CLTV) ratio (i.e., the ratio of the total amount of secured debts to the value of the property securing the debt);
- The actual or proposed loan terms in months;
- The number of months until the first date the interest rate may change after loan origination;
- Non-amortizing features;
- Value of property;
- Whether a manufactured home is legally classified as real or personal property;
- Whether the applicant or borrower owns the land on which a manufactured is or will be located through a direct or indirect ownership interest, or leases the land through a paid or unpaid leasehold agreement;
- The precise number of individual dwelling units in a multifamily dwelling related to the property securing the covered loan, or proposed to secure the loan (applications);
- The number of individual dwelling units in a multifamily dwelling that are income-restricted pursuant to Federal, State or local affordable housing programs;
- The loan application channel (i.e., how the loan was submitted to your credit union);
- The unique identifier assigned by the Nationwide Mortgage Licensing System and Registry (NMLSR ID) for the “mortgage loan originator,” as defined in Regulation G (SAFE Act);
- Whether the covered loan is, or the application is for, a reverse mortgage;
- Whether the covered loan is, or the application is for, an open-end line of credit; and
- Whether the transaction has a business or commercial purpose
Additionally, the property address and the automated underwriting system mortgage lenders used to evaluate applications must be reported and will be disclosed. The CFPB stated in its October 2015 final rule it anticipated this information will not be in the publicly-released data, but has not yet made this official.
It won’t be too difficult to connect the dots to determine which consumers obtained a financial service from your credit union, which is considered “nonpublic personal information” under Regulation P. It is doubtful many home-buying consumers are aware their private financial information is going to be exposed to the world, and that the CFPB, the supposed consumer watchdog has – as of yet – done nothing to ensure this information will be kept private.
Commenters making a similar argument when these data points were proposed were told in a footnote to the final rule the CFPB understands some of this information “may create privacy concerns sufficient to warrant some degree of modification, including redaction, before public disclosure, but it has determined that all of the data required to be compiled and reported under the final rule significantly advance HMDA’s purposes.”
While a good deal of information regarding a home sale can be found online (e.g., sale price, home size and projected value), what business is it of anyone to know your gross income, how much you are borrowing, your DTI and CLTV ratios, your credit score, the interest rate you pay, your total loan and origination charges levied, your age, and/or why you may have been denied a mortgage loan?
As the CFPB stated in its October 2015 HMDA final rule, the agency adopted a “balancing test to determine whether and how HMDA data should be modified prior to its disclosure to the public in order to protect applicant and borrower privacy while also fulfilling the disclosure purposes of the statute.” The agency also stated it intends to provide “a process for the public to provide input on the application of the balancing test to determine HMDA data to be publicly disclosed.
This rule has been finalized for over two years, with no action taken to protect nonpublic personal consumer information. No regulation should require the violation of another, and your members’ private financial information should not be exposed. The CFPB has yet to listen effectively regarding these concerns. Perhaps with a new director, they will. The time to act is NOW.