Big Data Meets Mortgage Reporting

Data has an increasing presence in mortgage lending, and regulators have discovered the opportunities it presents in monitoring lenders and establishing benchmarks. This trend, which involves more regulatory bodies requiring more data and more publishing of analytics to the public, will affect Home Mortgage Disclosure Act and fair lending compliance. And in turn, big data in mortgage lending will impact how credit unions are perceived by the public.

Today nearly all credit unions must file an annual HMDA report with data on applications, loans closed and the demographics of consumers who interacted with the lender. Plus, the Consumer Financial Protection Bureau is releasing consumer complaints to the public.

In addition, CFPB’s proposal for new HMDA data reporting rules released in July shows that an increasing amount of mortgage data will be made available to regulators, consumer groups and the public.

There is one small benefit for credit unions, especially those that file very small reports. If the new CFPB proposals were in place today, 339 of the 2,026 (16.7 percent) credit unions would be spared HMDA reporting based on year 2012 results if they did fewer than 25 applications, a caveat in the rules.

CFPB is recommending that most of the additional data initially be withheld, but eventually published online for public access. The 40 new reportable data fields being modified or added fall into four categories:

• information about applicants, borrowers, and the underwriting process, such as age, credit score, debt-to-income ratio, reasons for denial if the application was denied, the application channel, and automated underwriting system results;
• information about the property securing the loan, such as construction method, property value, lien priority, the number of individual dwelling units in the property, and additional information about manufactured and multi-family housing;
• information about the loan’s features, such as additional pricing information, loan term, interest rate, introductory rate period, non-amortizing features, and the type of loan; and
• certain unique identifiers, such as a universal loan identifier, property address, loan originator identifier, and a legal entity identifier for the financial institution.

In the new world of mortgage data, the standardization of the report format and proposed new requirement to use the mortgage industry’s Mortgage Industry Standards Maintenance Organization data standards means credit unions using loan origination systems will be able to provide data to a regulator in minutes, when requested, and that regulators will be able to quickly examine every loan in the reports.

In all, the requirement to report additional credit decision data—including credit scores, loan to value, debt to income ratio and pricing information—in a standardized way will both automate the ability of regulators and academic and consumer groups to analyze your pricing and credit policies and allow them to take regulatory or legal action within minutes of the data release. While credit unions generally compare favorably to their bank counterparts, lack of attention to the quality and accuracy of your data will be very painful in this data-rich environment.

Some good news about the new HMDA rules is that you have until at least Jan. 1, 2016, to comply, since that is the earliest reporting year the law can go into effect. This gives credit unions plenty of time to improve their operations in the areas of front-line data collection and the refinement of the data, as more information is collected on each borrower.  

Though most of these changes will not be favorable, credit unions of all sizes may benefit from one part of the proposal: quarterly reporting for institutions that make over 75,000 loans a year. While Navy Federal Credit Union is the only CU in this category, the fact that so much loan data will be available on a quarterly basis will allow credit unions of all sizes to regularly look at and respond to lending trends of large organizations.

Additionally, executives should look at the proposed HMDA changes as an opportunity to better analyze their data quality and how it reflects on their lending policies today. Use the time now, before the regulation goes into effect, to improve your operations well in advance of thousands of interested parties comparing you to your peers. Once your data is made public, you will not be able to “take back” what it says about your credit union and the impact that has on your reputation.

Of course, regulators can currently request any of this data. It’s just not as “formal” as CFPB is proposing for the new HMDA. The big data environment we now live in means you need to know how you compare on measures related to fair lending, credit quality, and serving the defined service area in the areas of minority penetration based on your field of membership guidelines. If you compare unfavorably, you need to make corrections as soon as possible, because these problems will catch up to you. If you show excellent lending results, verify and take full advantage of them.

CFPB’s implementation of the HMDA modifications will give credit unions and their vendors a push to update systems – yet again – and change databases to collect and report the information needed to address HMDA concerns.

A final thought in surviving in the big data environment: Make sure your systems store accurate data and your reporting systems submit that data to your regulators appropriately.  You aren’t being paranoid. In the big data world, people are watching you.

Leonard Ryan is founder and president of Laguna Hills, Calif.-based QuestSoft, a provider of automated compliance solutions for the mortgage industry.