Banks of all stripes have complained that upcoming new requirements for reporting information on mortgage lending will be too expensive to administer and are fearful that regulators won't cut them much slack if they make a mistake.
And here's another problem: Banks already fall far short of meeting the existing data guidelines, which are less demanding than the new requirements set to take effect in January 2018. The latest batch of data, released on Sept. 29, shows huge gaps of information about the number of minority consumers who applied for loans, among other measurements because banks either did not collect that data or applicants didn't check the boxes.
As required by the Dodd-Frank Act, the Consumer Financial Protection Bureau last year approved a massive overhaul of the Home Mortgage Disclosure Act. Banks will be required to collect far more data than they do now on mortgage lending, as the CFPB added 50 new data fields, such as personal credit scores and the value of properties that secure loans, according to mortgage analytics firm Mortgage TrueView.
The CFPB said when it released the proposal last year that the expanded requirements "will enhance the ability to screen for possible fair-lending problems, helping both institutions and regulators focus their attention on the riskiest areas where fair lending problems are most likely to exist."
Bankers say the CFPB's overly aggressive demands on data collection will increase their compliance costs, could lead to delays in the loan-closing process and increase the rate of mistakes on HMDA forms, leading to more financial penalties for financial institutions. "You don't want to miss a data point because the penalties are extremely significant and there's little room for mistakes," said Rose Oswald Poels, the chief executive of the Wisconsin Bankers Association.
Fair-lending advocacy groups consider HMDA essential to identifying the financial institutions that aren't holding up their end of the bargain on making loans to minority groups.
"There is no better source of data for regulators and public officials to use to understand where lending is and isn't happening in their communities," said Debby Goldberg, the vice president for housing policy at the National Fair Housing Alliance.
Regulators have recently cited several banks for high rates of rejections among minority applicants, or potentially charging higher rates to minorities. The Justice Department this month widened its investigation into mortgage lending practices at the $19 billion-asset Fulton Financial in Lancaster, Pa., to ascertain "potential lending discrimination on the basis of race and national origin," the company said in its quarterly report with the Securities and Exchange Commission. Cases like Fulton Financial's are predicated on HMDA information, said Becky Walzak, a senior managing director at Mortgage TrueView.
It will help regulators to have a more-extensive collection of data on the types of loans banks are making to minorities, a financial profile of borrowers and other information that can provide leads on trouble spots, Goldberg said. That data can be used as the basis for further investigations into banks' lending.
"Some of the new data is what we were missing in the run-up to the financial crisis, about what loans should have never been made in the first place," Goldberg said.
But it's unrealistic to expect lenders to file complete reports under the new standards when they can't meet current demands, said David Moffat, the CEO of Mortgage TrueView.
According to 2015 HMDA data, none of the top banks in the 10 largest metro areas filed a complete report on the gender, race and ethnicity of all its mortgage loan applicants, either because the bank didn't attempt to collect the data or applicants didn't volunteer it. While a few banks collected that information on more than 90% of applicants, some institutions only gathered a tiny portion. In metro Phoenix, the $127 billion-asset M&T Bank collected gender, race and ethnicity on only 12% of its applicants.
Gaps in the data make it difficult to make an accurate assessment of banks' lending to minorities or in predominantly minority neighborhoods, Moffat said.
"It may look like a lender isn't doing a good job," Moffat said. "But not all of the data is there. How can there be any type of analytics done when you don't have all the data?"
One problem is that some minority groups are known to avoid self-identification on application forms, out of fear the lender will discriminate against them, Goldberg said. It's up to banks to inform customers that it's in their best interests to identify themselves as part of a minority group, she said.
"Lenders should do a better job explaining to borrowers why they collect that data and that it's not being used against them," Goldberg said.
Lenders have also struggled with reporting errors. Numerous banks and state banking associations have asked the CFPB to adjust its resubmission guidelines to reflect the new data requirements. Banks incur high costs when they are required to refile reports, Moffat said.
"Keep the data required focused and narrow, and all financial institutions will be better able to comply with and support the intent of the HMDA program," Amy Bergen, the internal auditor at the $929 million-asset Androscoggin Savings Bank in Lewiston, Maine, wrote in a March 14 letter to the CFPB.
The penalties for making mistakes on HMDA reports are stiff, with some violations triggering civil money penalties, said Colgate Selden, a bank regulatory attorney at Alston & Bird. Other violations can create a situation where a lender can be sued by a private party under the Fair Housing Act, he said.
Some lenders have suggested to the CFPB that certain data points are more difficult to nail down. In one example, the new rules require banks to identify the "application channel" a customer used to access the bank, such as retail branches or online banking sites. However, "until additional guidance is given on defining the means of objectively reporting how someone arrived at your bank," banks shouldn't be penalized as harshly for making an error in that data field, Jeff Kanger, an executive vice president at the $472 million-asset First State Bank Nebraska in Lincoln, wrote in a March public comment letter.
The CFPB received 31 comment letters about the resubmission guidelines and is evaluating the comments and assessing potential changes, spokesman Sam Gilford said in an emailed statement. The CFPB has also held meetings with other groups involved in HMDA data collection, including consumer groups, state regulators and a large mortgage lender, he said.
The CFPB has not hesitated to demonstrate that it will enforce its new role as keeper of HMDA data. Last month, the agency issued a warning letter to 44 unidentified mortgage lenders and brokers saying that they were not collecting and reporting data on their lending activity, as required by HMDA.
"No mortgage lender that is required to report their loan data can avoid this responsibility," Cordray said in an Oct. 27 news release.
Ultimately, it all boils down to higher costs for banks. Mortgage TrueView estimated that the industry will spend about $2.1 billion on updating software, training staff, and updating compliance manuals to account for the new rules. That amounts to about $40 million in new spending for each of the new required data fields.
"Park Bank supports efforts to collect and report accurate HMDA data," David Werner, the CEO at the $908 million-asset Milwaukee bank, said in a March comment letter submitted to the CFPB. "However…this only adds to the regulatory burden and costs for us to comply with the collection, reporting and overall compliance requirements of HMDA."