Joint Trade Letter re HMDA Data Reporting Thresholds

Ladies and Gentlemen:

The undersigned trade associations, which represent small, community depository institutions, write in regard to a recent judicial opinion, National Community Reinvestment Coalition v. Consumer Financial Protection Bureau, issued by the United States District Court for the District of Columbia. The decision vacates portions of the 2020 Home Mortgage Disclosure Act (HMDA) final rule amending Regulation C. We ask the Federal Financial Institutions Examinations Council (FFIEC) to consider the extraordinary impact of this decision and issue formal guidance that allows small banks and credit unions a reasonable transition period to comply with the sudden changes occasioned by the ruling.

As background, on September 23, 2022, the District Court issued an order vacating (in part) the 2020 HMDA final rule that had increased the loan volume reporting thresholds for closed-end mortgage loans from 25 to 100 in each of the two preceding calendar years. The effect of the court’s ruling, therefore, is to abruptly and without notice eliminate final regulations that for three years had expanded the number of small-volume lenders that were exempt from HMDA reporting requirements.

The impact of this decision is severe. Hundreds of community banks and credit unions that relied on the exemption will now be required to collect and report 22 HMDA data points, presumably beginning on January 1, 2023. The tasks required to implement full-scale HMDA reporting programs—including updates to loan origination software, drafting policies and procedures,  training staff, and in many cases, hiring and conducting vendor due diligence on third parties to assist—are enormous. Our small volume lenders report that they will not have capabilities to accomplish these tasks in the remaining two weeks of the year. In addition, many of these lenders are experiencing significant staff shortages following COVID due to the “great resignation” and retirements. In many cases, new staff have no previous data collection experience, and even existing staff will need to be re-trained after a three-year hiatus from the data collection and reporting requirements.

In addition, depository institutions are concerned about the "pipeline" issue. Specifically, lenders receive applicants in the last quarter of 2022 that may not receive final action until 2023. As we understand the blog, these transactions must be reported on the 2023 Loan Application Register (LAR), yet lenders do not currently have the systems and infrastructure in place to capture all the data fields they will need to report on their 2023 LAR. For applications made in 2022 that result in originations in 2023, lenders may be able to get the information once their systems are up and running in 2023. However, for applications taken in 2022 that do not result in originations, e.g., files closed for incompleteness, it will be impossible for lenders to get the data in 2023 from applicants who did not wish to complete their initial application.

Download the full letter to read more.