Do the Right Thing- Helping Consumers Avoid Pay Day Loans

Many of us have been up late at night watching television have heard the commercials.  Or perhaps you have heard them while listening to the radio.  The announcer comes on and asks whether or not you have some emergency cash needs,  Well, assures the friendly announcer here at EZ loans, we are here to help.  All you need is a checking account and a paystub and we can loan you cash that will be put into your account tomorrow.  The appeal you are listening to is the siren call of the Pay Day lenders.  These lender position themselves as helping customers by doing for them what the banks won’t;  making them a loan in their time of need.  The truth is that nothing could be further from the truth.  These loans more often than not put the borrowers on a never ending spiral of increasing debt and financial ruin.   Recent comments by the Comptroller of the currency indicates that favorable consideration will be given to the bank that embraces the needs of the payday lender customers. 

Why get a Pay Day Loan? 

Payday loans are short term small dollars loans that almost always have a balloon repayment feature.   In fact, these loans are called “payday loans” , because they are generally due at the time of the borrowers payday.  Consumers take these loans out because they have immediate need of small amount of funds, to do things like pay a doctor bill, get a car repaired, etc.  There are many different reasons that have been noted for getting a payday loan.  These loans tend to be very small in size  averaging about $250 and they tend  to last 14 days  or until the next pay period.[1]   

One of the surprising features of the these loans is the fee structure.  The CFPB recently did a survey of these loans and found the following: 

The cost of a payday loan is a fee which is typically based on the amount advanced, and does not vary with the duration of the loan. The cost is usually expressed as a dollar fee per $100  borrowed. Fees at storefront payday lenders generally range from $10 to $20 per $100, though loans with higher fees are possible….. A fee of $15 per $100 is quite common for a storefront payday loan, and would yield an APR of 391% on a typical 14-day loan.  [2]

 Another troublesome feature of payday loans are that since the entire loan balance is due and payable when the borrower gets paid , the borrower often does not have enough money to pay the loan and all of the regular monthly bills.  The borrower then asks for a renewal of the loan and so the cycle begins.   The CFPB described it this way:

§  Over 80% of payday loans are rolled over or followed by another loan within 14 days (i.e., renewed). Same-day renewals are less frequent in states with mandated cooling-off periods, but 14-day renewal rates in states with cooling-off periods are nearly identical to states without these limitations.

§  Few borrowers amortize, or have reductions in principal amounts, between the first and last loan of a loan sequence[3]. For more than 80% of the loan sequences that last for more than one loan, the last loan is the same size as or larger than the first loan in the sequence. Loan size is more likely to go up in longer loan sequences, and principal increases are associated with higher default rates.

§  Monthly borrowers are disproportionately likely to stay in debt for 11 months or longer. Among new borrowers (i.e., those who did not have a payday loan at the beginning the year covered by the data) 22% of borrowers paid monthly averaged at least one loan per pay period. The majority of monthly borrowers are government benefits recipientsborrowers (48%) have one loan sequence during the year. Of borrowers who neither renewed nor defaulted during the year, 60% took out only one loan.

The CFPB study showed that the people who apply for and receive payday loans are in income ranges from < $10k annually up to $60k.  These figures only take into account the income stated on the loans received, so income ranges could be even higher.  The point is that, as the pay day lenders say in their commercials “we a’’ need money sometime”.    The fact is that past studies by the FDIC have some that less than 30 percent of low-income households and less than half of moderate-income households have at least $500 in emergency savings. 

And while this number may be somewhat troubling it also presents a strong case that there is indeed a market for some dollar loans for consumers. 

Time for Change

In his speech before the  before the  2014 National Interagency Community Reinvestment Conference in Chicago, Illinois , Thomas Curry, the comptroller of the Currency addressed this issue directly.  He noted the dismal history of this type of lending.  Mr.  Curry also pointed at that there had been similar products at some banks that were called deposit advances.  Guidance by the FDIC and the OCC has effectively ended this practice.   

We agree with My. Curry that there is a market for  small dollar loans. We are also intrigued by the suggestion that developing a program designed to assist these consumers will inure positive credit towards an institutions CRA lending test and possibly the service test.   

The potential exists then for a bank to  buttress its reputation in the assessment area, while making a modest profit and gaining positive CRA credit. 

Developing a Program

It goes without saying that one of the goals for developing a loan program for small dollar loans has to be to keep costs to the bank minimal.  Developing a set of data that can be easily collected and can be predictive about loan performance is most certainly not rocket science.   Using a formula to make these types of loans can reduce the costs of underwriting. 

One of the main features that must be avoided when making small dollar loans is a balloon payment.   This is the feature of pay day loans and deposit advances that the regulators found objectionable. 

We believe that what is imagined is a product that is designed to let a customer grow into a full-fledged profitable relationship.  A small dollar loan with reasonable terms allows the bank to report favorable information to credit reporting agencies.  It further allows the bank to reach to communities that have been traditionally under banked. 

Added a feature to the loan that allows the bank to give financial counseling to the customer gives the product the serve both the lending test and the service test requirements of the Community Reinvestment Act. 

If your institution is considering developing such a program, it is an excellent idea to get the input of your regulator.  By collaborating, you have the benefit of strengthening your relationship with your regulator, working through any troubles with the program and getting the “halo” effect of developing the program in the first place.  

By doing the right thing, your bank can gain several benefits. 

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[1] Some pay day loans for example, last 30 days to match the pay period of a borrower who is paid monthly. 

[2] CFPB, “Payday Loans and Deposit Advance Products, a White Paper of Initial Data Findings,” available at http://files.consumerfinance.gov/f/201304_cfpb_payday-dap-whitepaper.pdf  

[3] Loan sequence is defined as a series of loans taken out within 14 days of repayment of a prior loan.

Why is there a UDAAP?  

 As anyone in compliance can attest to, there are myriad consumer compliance regulations.  For bankers, these regulations are regarded as anything from a nuisance, to the very bane of the existence of banks.  However, in point of fact, there are no bank consumer regulations that were not earned by the misbehavior of banks in the past.  Like it or not these regulations exit to prevent bad behavior and/or to encourage certain practices.   We believe that one of the keys to strengthening a compliance program is to get your staff to understand why regulations exist and what it is the regulations are designed to accomplish.  To further this cause, we have determined that we will from time to time through the year; address these questions about various banking regulations.  We call this series “Why is there….” 

The Background

At the end of the Great Depression, there was a public outcry for changes in regulations that dealt with all manner of financial institutions.  During the financial crash consumers found out that many of the promises that had been made by business were not kept.  Insurance companies did not pay as promised, departments stores that had promised refunds for returns reneged, banks closed overnight and business in general were able to avoid payments to consumers that they had seemingly promised.    Neither state governments nor individuals had many options when they found that they had been misled or defrauded.   A consumer who was defrauded often found that fine print in the contract immunized the seller or creditor. Consumers could fall back only on claims such as common law fraud, which requires rigorous and often insurmountable proof of numerous elements, including the seller’s state of mind. Even if a consumer could mount a claim, and even if the consumer won, few states had any provisions for reimbursing the consumer for attorney fees. As a result, even a consumer who won a case against a fraudulent seller or creditor was rarely made whole. Without the possibility of reimbursement from the seller, consumers could not even find an attorney in many cases.  [1]

Among the changes being requested were the laws that prevented practices that were deceptive or fraudulent.  Eventually it fell to the Federal Trade Commission, FTC, to write regulations for consumer protection on a federal level.  UDAP statutes were passed in recognition of these deficiencies. States worked from several different model laws, all of which adopted at least some features of the Federal Trade Commission Act by prohibiting at least some categories of unfair or deceptive practices. But all go beyond the FTC Act by giving a state agency the authority to enforce these prohibitions, and all but one also provide remedies that consumers who have been cheated can invoke.  In addition to the FTC regulations, state laws and court decisions help to shape the definition of unfair or deceptions business practices.   

The Predecessor

The original UDAP (with one “A”) Unfair, Deceptive Acts or Practices is derived from Regulation AA, also known as the Credit Practices Rule.   The regulation was divided into two subparts;  

•       Subpart A outlines the process for submitting consumer complaints to the Board of Governors of the Federal Reserve System’s Division of Consumer and Community Affairs

•       Subpart B puts forth the credit practice rules pertaining to the lending activities of financial institutions. It defines certain unfair or deceptive acts or practices that are unlawful in connection with extensions of credit to consumers

•       certain provisions in their consumer credit contracts, including confessions of judgment, waivers of exemptions, assignments of wages and security interests in household goods unfair or deceptive practices involving co-signers

•       pyramiding late charges, in which a delinquency charge is assessed on a full payment even though the only delinquency stems from a late fee that was assessed on an earlier installment

Through the last half of the 20^th century, UDAP regulation was largely the purview of the Federal Trade Commission.  Bank regulatory agencies generally issued guidance for banks to follow and some the practices that we mention above were specifically prohibited.   However, the truth of the matter was that UDAP enforcement was not exactly a matter of  grave concern in the banking industry. 

UDAAP-Supercharged

The financial meltdown of 2009 lead to many changes in regulations including the passage of the Dodd-Frank Act.  Among the changes brought about by Dodd-Frank, was the supercharging of UDAP!  The regulation became the Unfair Deceptive Abusive Actions, Practices, or UDAAP.  

UDAAP with two ‘A’s goes beyond extensions of credit and introduces an enterprise-wide focus on all the products and services offered by your institution.   The CFPB has been given the authority to bring enforcement actions under UDAPP.    Considered at a high level, UDAAP is more of a concept than an individual set of regulations.   The idea is that dealings with the public must be fair and that financial institutions should in fact look after the best interests of its customers. 

Another key difference is that UDAAP coverage makes it unlawful for any provider of consumer financial products or services to engage in unfair, deceptive or abusive act or practices; therefore, this regulation may be applicable far beyond financial institutions.

Under the new UDAAP regime, financial institutions can be liable for the actions of the third party processors that they hire.  This is one of the many reasons why vendor management has become such an Important area. 

Even though there a great number of laws that deal with required disclosures on financial products such as loans and certificates of deposit, these laws generally do not deal with the fairness of the terms or the possibility that a consumer may unwittingly agree to additional fees and terms that go well beyond the agreed to interest rate.   UDAAP is designed to address this problem.  

The Basics

The basic definitions for UDAAP are as follows; 

What is “unfair’?

•       The practice causes or is likely to cause substantial injury.

•       The injury cannot reasonably be avoided.

•       The injury is not outweighed by any benefits.

 

Briefly,  what this means is that if a customer has to pay fees or costs because of some act by the bank  that is deemed unfair, then a substantial injury has occurred.  The description of the regulation does say that the injury does not necessarily have to be monetary, it can be emotional.  However, there are no current examples of this second form of substantial injury.   This is the section of the regulation that is most often applied to overdraft programs.  Even in the cases where  banks allow overdrafts only after getting a customer’s permission and providing monthly statements that show the amounts of overdraft fees that have been paid, a substantial injury can be found.

What is “deceptive”?

•       The practice misleads or is likely to mislead.

•       A “reasonable” consumer would be misled.

•       The presentation, omission or practice is material.

 

According to the CFPB, to determine whether or

 

To determine whether an act or practice has actually misled or is likely to mislead a

consumer, the totality of the circumstances is considered. Deceptive acts or

practices can take the form of a representation or omission. The Bureau also looks at implied representations, including any implications that statements about the

consumer’s debt can be supported. Ensuring that claims are supported before they

are made will minimize the risk of omitting material information and/or making

false statements that could mislead consumers.

 Any programs that you have that have the possibility of late fees or additional fees as the result of balances, usage charges or any fees that are in addition to the initial fees all have the possibility being misleading.  We have found that this section is most often cited when the language used in disclosures does not match the language in advertisements or on the website.  For example, in one case, a bank called a fee a “maintenance fee” in its advertisements, but called the fee a “monthly” fee in the disclosures that it gave customers at the time they opened the accounts.   This was cited as a deceptive disclosure.   

What is “abusive”?

•       The practice materially interferes with the consumers ability to understand a term or condition of a product or service.

•       The practice takes unreasonable advantage of a consumer’s lack of understanding of the risk, costs and conditions of a products or service.

The CFPB description of this portion of the regulations notes that a consumer can have a reasonable reliance on a financial institution to act in his or her best interests.   This means that for products or services that are offered that have the ability to add fees or costs , there is an affirmative duty to make sure that the customer knows what it is that they are getting into. 

UDAAP Pitfalls

Here is a list of practices that have come under scrutiny for UDAAP consideration

•       Overdraft programs

•       Debt collection Practices

•       Loan payment processing

•       ATM fees

•       Loans with balloon payments

•       Credit life and disability insurance sales

•       Rewards programs

•       Gift card sales

•       Credit Card programs 

This is not to say that any of these programs are forbidden or even a bad idea.  Instead, what is necessary is to make sure that as you offer these programs or products, make sure that the disclosures about them are both clear and consistent. 

We recommend taking the followings steps when assessing overall UDAAP potential problems at your bank: 

1.     Review all of the product features of consumer products at your bank.  For all products that have the potential to add fees or costs (such as early withdrawal penalties), review for potential UDAAP concerns;

2.     Have several members of staff review product  features to determine whether the potential for misunderstanding exists;

3.      Review the revenue streams for consumer products and look for increases of more than 1% per quarter.  In the event that revenue has increased, determine the reason for the increase;

4.      Review the written and oral disclosures that are being given to customers to ensure that they are consistent and correct;

5.      Review current agreements with third party servicers to make sure that there is a clear understanding of the services being provided: 

6.      Conduct thorough and regular due diligence on third party servicers; 

7.      Complete a regular check to ensure that the language  on all mediums of communication with the public is consistent (a maintenance fee is a maintenance fee);

8.       Evaluate customer complaints for signs of more serious systemic problems

 
We have provided for you on our website a checklist to assist you with you UDAAP review of products and services

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[1] A 50-State Report on Unfair and Deceptive Acts and Practices Statutes

Carolyn L. Carter 2009

Addressing Upcoming Changes in HMDA Directed by the Dodd Frank Act-A Two Part Series

Part Two:  Being proactive is the Way to go! 

In part one of this series, we discussed a brief history of HMDA.  The goal of this regulation has always been to collect comprehensive information about the lending practices of financial institutions.  We also noted that changes in the regulation have been directly related to changes in the mortgage industry. 

The Dodd Frank Act is yet another example of how occurrences in the banking industry have affected regulation.   The official statement of CFPB director Rich Cordray describes how the Dodd Frank Act has been impacted by the most recent financial meltdown. 

When Congress enacted the Dodd-Frank Act in 2010, it specifically tasked us, the Consumer Financial Protection Bureau, with getting better information from mortgage lenders. Congress directed us to improve HMDA reporting because, just as Louis Brandeis, America’s original consumer advocate and later a distinguished Supreme Court Justice, observed, “Sunlight is said to be the best of disinfectants; electric light the most efficient policeman.”[1]

With that thought in mind, the Dodd Frank Act added several specific new requirements to HMDA.    These new requirements include the following:  

·         The total points and fees;

·         the term of the loan;

·         the length of any teaser interest rates;

·         the borrower’s age

·         the borrower’s credit score and credit score. This new data may be made available to the public, consistent with the privacy interests of borrowers and applicants

The Proactive Approach

As we mentioned in part one of this series, the above list of changes to HMDA are already known because they are written into the Dodd Frank Act.  We suggested that  for these changes, your bank could immediately start collecting this additional information, taking comfort in knowing that these will eventually be required. 

 In addition to these Dodd Frank mandated changes, the  changes CFPB has been empowered to look at additional ways that HMDA can be changed to require data collection that can help with analysis of the mortgage industry.  The February statement makes it clear that the CFPB  is taking this duty seriously and is considering a number of additional changes. 

“ So we are considering other types of information that would give regulators a better view of developments in all segments of the housing marketplace. We are considering asking financial institutions to include more underwriting and pricing information, such as an applicant’s debt-to-income ratio, the interest rate, the total origination charges, and the total discount points of the loan. This will help regulators spot troublesome trends in mortgage markets around the country.[2]

The following is a list of changes being considered  by the CFPB and their explanation: 

New Data Element	CFPB  Description
Mandatory reporting of denial reasons	Denial reasons are important for understanding whether financial institutions are serving the housing needs of their communities and treating applicants fairly. Lenders currently have the option of reporting the reasons for denial of loan applications. Many, but not all, lenders report denial reasons – in fact, certain lenders that report to the OCC and FDIC are already required to provide this information. The Bureau believes that requiring this information for all HMDA reporters will result in more consistent and statistically meaningful data
Debt-to-Income (DTI) ratio	Debt-to-income is a key factor in underwriting decisions, closely related to borrowers’ ability to repay, and is critical in understanding patterns in mortgage outcomes. When denial reasons are reported, too much debt is a primary reason for rejection of loan applications. In assessing  repayment ability under Bureau rules, lenders are required to consider the borrower’s total DTI or residual income. Thus, including DTI in HMDA data could provide additional insight into lenders’ denial rates.
Qualified Mortgage status of loan	The Bureau is considering proposing to require lenders to report whether they determined the loan to be a Qualified Mortgage. Qualified Mortgages are loans that meet certain criteria and are presumed to comply with the Bureau’s Ability-to-Repay rule. Including Qualified Mortgage status in HMDA data could help regulators better   determine how the CFPB’s rules are impacting the mortgage market.
Combined loan-to-value (CLTV) ratio	The combined loan-to-value (CLTV) ratio is a key factor in underwriting decisions, and is critical in understanding patterns in mortgage outcomes. The CFPB is considering requiring lenders to report the ratio of the combined unpaid principal balance of multiple loans to the value of the property. The Dodd-Frank Act expanded HMDA to include loan-to-value ratios, but lenders consider the CLTV in underwriting and pricing loans, so including CLTV in HMDA will improve analyses of pricing information
Automatic underwriting systems results.	Lenders widely use automatic underwriting systems (AUS), as a critical part of their decision whether to approve or deny an application. Including AUS decisions in HMDA could help regulators better understand credit decisions and identify problems .
Affordable housing programs	For loans secured by dwellings with more than one unit, the Bureau is considering requiring lenders to report whether the property is deed restricted for affordable housing. This data might enable more robust analysis of access to credit in certain communities and better targeting of public resources, consistent with HMDA purposes and assisting with Community Reinvestment Act compliance exams
Manufactured housing data	Lenders are currently required to report whether a loan will be for a manufactured home. The market for credit to finance manufactured home purchases is different from the market for credit to finance site-built home purchases. Additional information on manufactured home loans, including the type of financing and whether the borrower will own or lease the land where the home is sited, will make it easier to identify the sources of differences in denial rates, and will improve understanding of manufactured home financing
Additional points and fees information	The Dodd-Frank Act requires lenders to report total points and fees and rate spread. The CFPB is considering requiring more detailed pricing-related information which will help regulators compare similarly situated borrowers to identify potentially discriminatory lending practices for further investigation and reduce “false positives” when analyzing disparities.  Additional information may include:    ·         Total origination charges ·         Total discount points ·         Risk-adjusted, pre-discounted interest rate ·         Interest rate

 

While it is impossible to accurately predict which of changes will be implemented or in fact all of them will, we believe that a discernable theme is developing.  Put most directly,  the time is now to gather as much information about the lending process as  possible.   Your new HMDA data collection process should be as expansive as possible.  The good news is that all of this information should be readily available from the loan application process.  If you look at the above list again, you see that that there is virtually nothing that you don’t ask for during the application process.  Now is the time to look at the information about HMDA,  what it is intended to do and what the CFPB is considering . We believe that the best practice is to address this data collection in a proactive matter. 

As we noted before, the changes that are mandated by Dodd Frank and the changes being considered by the CFPB have not yet been implemented through a new regulation.  What we suggesting is that now is the time to address  the increased information requirements so that when the implementing regulation is finally adopted, the transition will be smooth.  It is also worth noting that with the additional information being collected, a bank can greatly enhance its knowledge of the credit needs of its community.  This information will be critical for CRA, Fair Lending and strategic planning purposes. 

We have attached our suggested form that includes all of the categories being considered in addition to the ones that we know will change. 

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[1] FEB 7 2014 Prepared Remarks of CFPB Director Richard Cordray on the HMDA Press Call

 

[2] Ib. id. 

Addressing  Upcoming  Changes in HMDA Directed by the Dodd Frank Act-A Two Part Series

Part One: The “Known-Knowns”  

Early in February, we wrote about Section 1071 of the Dodd Frank act.   This section adds a part to the Regulation B that will require collection of information on business borrowers.  The best guess is that the collection process will resemble the current HMDA process.   Section 1071 of the Dodd Frank Act also directs that additional information must be collected by banks that report under HMDA.   Right now, this section does not have an implementing regulations, so the exact date that  the new information will be required is unknown.  However, to paraphrase a speech from Donald Rumsfeld, there are some known-knowns when it comes to these changes.     

A Quick Bit of Background

Remember that HMDA  is designed to help develop information on the lending practices of banks.  In its original form, HMDA was designed to make banks disclosed where they were lending to help stop “red-lining”.   Red-lining was the practice of specifically refusing to make loans in areas or neighborhoods.  In the past, there were lenders who would literally take a map of a city and draw a red line around neighborhoods in which they refused to lend.  

As the mortgage industry grew and changed, HMDA also changed.  The focus of the information being collected moved from disclosure of information at banks collectively to the experience of individual borrowers at banks.  Information on the application process and the results of the application were added to HMDA in the 1980’s

At the turn of the century, the focus of the information collected changed again and this time the time of credit being offered became the focus.  As a result the terms of the loans and more information about the lien status of the loans was added to HMDA.  

Dodd Frank Changes

The changes in HMDA that are being brought about by Dodd Frank are another step in the progression of the regulation.   The idea here is that HMDA will be used to develop more information about the overall status of the mortgage industry.  For example, the CFPB noted in press releases that

While a lot of information is contained in HMDA….additional mortgage information could help federal regulators, state regulators, lenders, consumer groups, and researchers better monitor the market. For example, no data is currently gathered on home equity lines of credit, which surged prior to the housing crisis nor on teaser mortgage rates which had a hand in causing it.  HMDA data currently contains only limited information about loan features and interest rates.[1]

 

In addition, the Dodd Frank changes will also require a HMDA-like program that will collect information on women and minority owned businesses.   Don Sokolov, the Deputy Associate Director, Division of Research, Markets & Regulations for the CFPB put it this way: 

“We know that the changes in the Act are designed to The Dodd-Frank Act helps small businesses by filling a major gap in knowledge about the market for small business credit. Section 1071 of the Dodd-Frank Act amends the Equal Credit Opportunity Act to require that financial institutions collect and report information concerning credit applications made by small businesses and women- or minority-owned businesses. One stated purpose of Section 1071 is to strengthen fair lending oversight. The CFPB and other authorities will be able to use these data to improve the effectiveness and efficiency of fair lending enforcement efforts^[2]”

The type of information that will be required here is still very much unknown and we will discuss this area further in Part Two of this series. 

 

Moving Forward-Getting Ready for Changes

Despite the fact that there are currently no regulations that specifically, address these changes, the CFPB has begun the process.  Therefore, one of the” known-knowns” is that the regulations are coming.  

We also know that there are several data points that will be part of the new regulation.  We know this because these data points are written into the law and will be required to be part of the new regulations.  The Dodd-Frank Act specified new data points to be collected and reported: namely, the total points and fees of the mortgage; property value and improved property location information; the length of any teaser interest rates, prepayment penalties, and non-amortizing features; lender information, including a unique identifier for the loan officer and the loan; and the borrower’s age and credit score

 Finally, we also have a good idea of additional changes that the CFPB is considering.  We know this because they released a factsheet that shows they required changes and changes being considered. [3]

Using what we know about the changes that are coming, we know that there are at least different approaches that financial institutions can take to prepare: 

1)       Do nothing and wait for the regulations to be published;

2)      Address the “known-knowns”  by collecting the data that is written in the law;

3)      In addition to the above attempt to start collecting data on the proposed areas.  

We whole-heartedly do not advise taking the first approach.  While it can seem prudent to wait until a change is actually made, in this case, we know that the change is coming.  Waiting until the rule is published leaves your bank open to higher risk and the costs associated with last minute alterations that need to be made.  The risk adverse route is to marshal forces now to get ready for the changes that you know are coming. 

Taking the second route and addressing the areas that are certain to be part of the new regulations is, in our opinion, a risk adverse approach. 

The following is a list of data that is required by Dodd Frank, along with the CFPB comments; 

New Data Element	CFPB  Description
Age & Credit score	Unscrupulous lenders may target the elderly for unsuitable and costly loans – having applicant age will help regulators identify and potentially take action to discourage these schemes. Credit score will make it easier to understand why some borrowers are denied and why some borrowers pay higher rates than others. Credit score will also help regulators identify lenders  who may warrant closer review
Total points and fees at origination	It is critical that regulators understand how much borrowers are paying for their loans in the form of the total points and fees and the rate spread. These data points will significantly enhance financial regulators’ understanding of pricing outcomes and risk factors for  borrowers.
Value of property securing loans	The value of a property is an important part of a lender’s decision whether to make a loan and what rate to charge.  Property value information will help regulators better understand lenders’ acceptances and denials, and the rates and fees they charge borrowers. Improved location information will help with analyses of local mortgage  markets
Introductory fixed-rate period for variable-rate loans, Prepayment penalties,  Ability to make other than fully-amortizing payments	Particularly in the years leading up to the mortgage crisis, certain types of loan features have been problematic for consumers. Including this information in HMDA will give financial regulators a better view of the effect of riskier loan features.
SAFE Act unique identifier, Universal loan identifier.	Including  information such as an identifier for the loan officer who works with the borrower, a unique identifier  for the loan, and information about whether the applicant or borrower works with a mortgage broker,  would help regulators keep track of lenders’ business practices.

 

There are several points of information that are also being considered by the CFPB.  We will discuss these and the implications for reporting in out next post. 

Since we know that this information will be part of any new regulation, now is the time to start developing the processes and getting the training necessary for staff to understand the requirements.  In doing so, your institution will make the transition smooth, reduce risk and overall costs. 

We have provided  a suggested data collection form on our website for your convenience

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[1] See Swanson- CFPB Changes HMDA Data Collection-Mortgage News Daily February 2014

[2] Testimony of Testimony of Dan Sokolov Deputy Associate Director, Division of Research, Markets & Regulations Consumer Financial Protection Bureau

[3] CFPB FACTSHEET: CONSUMER FINANCIAL PROTECTION BUREAU TAKES STEPS TO IMPROVE INFORMATION ABOUT ACCESS TO CREDIT IN THE MORTGAGE MARKET  February 7, 2014