The Consumer Financial Protection Bureau (CFPB) finalized a rule today that it hopes will shed more light on the lending practices of financial institutions—reverse mortgage lenders included.
The rule updates the reporting requirements under the Home Mortgage Disclosure Act (HMDA)—also known as Regulation C—which requires lenders to report information about the home loans for which they receive applications or that they originate or purchase.
Originally enacted in 1975, the HMDA serves as a resource for both the public and regulators so that they can use the information to monitor financial institutions, identify possible discriminatory lending, and assist in distributing public-sector investment so as to attack private investment to areas where it is needed, according to a statement the CFPB issued Thursday.
“With today’s final rule, we are shedding more light to foster better understanding of the market, and also ensuring that lenders have sufficient time to come into compliance,” said CFPB Director Richard Cordray in a written statement.
Most of the provisions of the final rule are slated to take effect on January 1, 2018, with lenders expected to collect new information that year and then report this info by March 1, 2019.
The final rule changes what data financial institutions are required to provide in order to improve the qualify of HMDA in today’s housing market, the CFPB stated.
Specifically, the final rule requires—among other things—that covered lenders report information about all applications and loans secured by dwellings, including reverse mortgages and open-end lines of credit. However, pre-approval requests for these same loans will not be covered transactions under the HMDA Rule effective Jan. 1, 2018.
Under exiting rules, financial institutions are required to report information about applications for, and originations of, closed-end loans made for home improvement, home purchase or refinancing. And this includes reverse mortgages as well.
“Under existing Regulation C, reverse mortgages are subject to these same criteria for reporting: a closed-end reverse mortgage must be reported if it is for one of the three purposes; a reverse mortgage that is an open-end line of credit is optionally reported,” states the final rule.
The current regulation, however, does not define “reverse mortgage” or require financial institutions to identify which applications or loans are for reverse mortgages.
The CFPB said it received “a number of comments” specifically about the coverage of reverse mortgages under the HMDA, which included contrasting views between consumer advocacy groups and reverse mortgage industry participants.
On one hand, consumer groups largely supported the proposed reverse mortgage definition, arguing that having data about all reverse mortgages would be valuable to “ensure an adequate understanding” of the market.
“These commenters stated that publicly available data about all reverse mortgages will be essential in the coming years as the country’s population ages and older consumers, many of whom are cash-poor but own their homes outright, may increasingly use home equity for living expenses and other purposes,” stated the CFPB in the final rule (p. 137).
Several reverse mortgage industry commenters, including trade associations and financial institutions, however, disagreed with the proposal to require all reporting of reverse mortgages.
Generally, commenters argued that this all-inclusive reporting would create new costs for financial institutions and that the burdens do not justify the potential benefits, as reverse mortgage lenders are already exiting the market as a result of “regulatory demands and uncertainties with reverse mortgages, and that requiring reporting of all reverse mortgages under HMDA would continue that trend.”
“Some of these commenters asserted that Regulation C should not apply to reverse mortgages at all, or that reverse mortgages are outside the scope of HMDA,” the CFPB stated. “Others argued that the Bureau should maintain current coverage of reverse mortgages and require them to be reported only if they are for home purchase, home improvement, or refinancing.”
Industry stakeholders also argued in their opposition to the rule that the burden would have a serious impact on smaller firms, particularly lenders that make fewer than 100 loans in a year.
While the CFPB acknowledged that additional data reporting will impose a burden on financial institutions, it believes that the benefits justify the burdens.
“Information on all reverse mortgages, regardless of purpose, would help communities understand the risks posed to local housing markets, thereby providing the citizens and public officials of the United States with sufficient information to enable them to determine whether financial institutions are filling their obligations to serve the housing needs of the communities and neighborhoods in which they are located,” the CFPB stated.
Requiring the reporting of all reverse mortgages, the CFPB suggests, would also help welcome more private investment in the sector.
“[T]he proprietary market for reverse mortgages has substantially declined in recent years,” the CFPB stated. “Thus, requiring improved information regarding all reverse mortgages would assist public officials in their determination of the distribution of public sector investments in a manner designed to improve the private investment environment.”
View the CFPB final rule.
Written by Jason Oliva