Hey everyone. This is Mark with a special archive episode of With Flying Colors. I hope you enjoy.
I'm thrilled today to be joined by Joe Goldberg, Joe, how are you doing this morning?
Doing well, mark, thank you for having me.
You got it. You got it. Joe, for those people who may have missed your first episode could you give us a little bit of of a bio on yourself? If you will, on what you've done in the financial.
Sure. I retired this past December 31st or mid CUA after eight years doing consumer compliance work. And that includes fair lending and the home mortgage disclosure act, which we're going to talk about today. I've been a lawyer for over 40 years. I've taught consumer law. Just done a variety of things in the legal field, including the financial regulation.
Very good. I'm thrilled to have you as a guest today. And as you mentioned, we're going to talk about a home mortgage disclosure act, also known as hummed up H M D a. And to start us off, maybe you can give us a little bit of a basic background on.
Sure. That's my intent is to really cover the basics and provide an overview of the law. Honda is a very. Highly detailed area. So I'm going to talk about resources that you can use to jump into some of those details. If your credit union is required to comply with Honda felt it start off.
If I would ask listeners, what is I'm guessing a lot of them would say Hyundai is a pain in the rear end, or it's something that government created because they think credit unions have nothing better to do with their time. But after overseeing the NCUA is hummed the program at, I get that but Yeah. Even criteria for are covered by him to change your changes year to year. So it's difficult in that respect, but it does have a noble purpose.
When I talk about consumer laws, I like to start with why they were created for hum. The Congress made that very easy because it put that right in the law. It's. Did I hear is what hummed says about itself. First is the findings of Congress.
Redis is a quote from the law itself that Congress finds that some depository institutions have sometimes contributed to the decline of certain geographic areas by their failure, pursuant to their chartering responsibilities, to provide adequate home financing, to qualified applicants on a reasonable terms and conditions. The findings of Congress and it goes on into the actual purpose of Honda.
And that is the purpose of this law is to provide the citizens and public officials of the United States. With sufficient information to enable them to determine whether depository institutions are filling their obligations to serve the housing needs of the communities and neighborhoods in which they are located and to assist public officials in their determination of the distribution of public sector investments in a manner designed to improve the private investment environment.
So that, that tells you. Y hum. The was created. It has to do with the housing issues that actually still are prevalent in our country now, but it's to help offset some of those problems hummed, it goes back to 1975, which is when it was inactive. And so as a result of that, we actually have mortgage data, good mortgage data going back for over 45 years. So how does this kind of work what's it intended to do?
If the NCUA has a fair lending guide on its website, that's available to the public and it has a good description of hunter. It says that Humberto was implemented by, which is, excuse me, implemented by regulations. C as in cat requires financial institutions, including credit union. To compile and disclose data about home purchase loans, home improvement, loans, and refinancings that they originate or purchase or for which they receive applications.
And the purpose according to the manual is to provide the public with data that can be used to help determine whether credit unions are serving the housing needs of their communities. To assist public officials and distributing public sector investments to attract private investment to areas where it's needed. And. Maybe most important to assist in identifying possible discriminatory lending patterns and enforcing compliance with anti-discrimination statutes.
So that's the general background on hump and we should probably take a look now at what it covers, who has to collect and file hum. The data, what data must be collected and filed how and when it's supposed to be filed,
Yeah, there's a lot there. You've got, you got you a lot there. And so you mentioned the NCAA is fair lending guide. For listeners, we'll have a link to that in the show notes where you can find that. And Joe, some of the questions you pose that we needed to ask so who is it? Credit union wise. Must report and collect humbug hum. To data in 2022. And maybe if you could also I'll do it, make it into a two-parter you said who's covered changes every year.
Who's covered in 2022. And how do the changes work?
All right. Let's start with the criteria for 2022. And these are four criteria. All of which a credit union must meet. In order to be required to file. So if you do one of the four, three of the four, you're not required, you have to meet all four of these requirements. So the first one is what's referred to as an asset size threshold that changes annually. But for 2022 a credit union meets the asset size threshold. If the total assets, as of December 31st, 2021, Exceeded $50 million.
So that's the first thing. If you're over, if you're under $50 million and close the book know, go home, you don't have to worry about it. But if you are over $50 million in assets, then you'd look to the second criteria, which is called the location test. And that is that the credit union.
Also in 2021 or as of the end of the year 2021 had a home or branch office in a metropolitan statistical area that includes a branch office or any location where accounts are established, where loans are made. But ATM's are not included. Then how do you find that out? Some of the resources. But a point you to, and as mark said, you'll have made available to you after the after you listened to this they tell you how to determine if the credit union is in a metropolitan statistical way.
So again, the credit union meets these first two criteria. You move on to the third prong of this, which is loan activity test. So if the credit union originated at least one home purchase loan and that's excluding temporary financing, like a construction loan, that doesn't count. So it's one home purchase loan or refining. A home purchase loan secured by a first lien on a one to four unit dwelling during 2021.
And then finally, if you meet all three of those requirements, the last one is the loan volume threshold. So if the credit union originated at least 100 hundred covered, closed end mortgage loans in each of the two proceeding calendar year. And those would be 20 in 20, 20 and 2021, or at least 200 covered open-end lines of credit that our home equity line home equity loans again in each of the two preceding calendar years, 2020, or 2020 and 2021. Excuse me.
So if you meet all four of those criteria, you are required to collect and submit hum. The data for 2022.
So yeah, so let me just make an observational comment on that. So I have a relationship with ACU, so that helps generate loans. However, the credit union as part of that gives the QSO, their. Matrix on how they're going to decide the credit decision. And it says it fits the credit union's policy. Under that scenario, it would be the credit union who would submit it because again, they're making the credit decision. That's interesting. I didn't realize that.
Yeah. There's some niceties to that such as if the credit union does give up its right to refuse. It may be relying on the cues of the QC. Nate. He may be the one. It's not an easy thing to, to characterize because again, a lot of little details that you have to look at to make sure you're in compliance
It comes down to that. If it comes down to that important legal word. It depends, right? Yeah. So it depends on the facts of each situation. Got it. Okay. That's helpful too.
Exactly. All right. So you want to know what the, what is the data that the credit unions need to collect if they are required? So it's data that comes from applications and consummated loans and it's data that includes demographic information about applicants and details about the loans themselves. Know I'm not going to get into what they are, but there are 48 data points that must be collected.
And of course, since nothing is easy, some of those data points have multiple data fields within them to some of the things that are covered or the must be collected our loan type loan, purpose, loan amount action taken on the application, property address and rates spread other items include ethnicity, race, sex, age, income, and credit score.
Now, some of this demographic data is collected via the universal residential loan application, which is widely used in the mortgage industry, especially by lenders who sell their mortgage loans Fannie and Freddie use those applications. So that generally speaking, they're used by most lenders.
Got it. So Joe, you mentioned all these different items and data sets that must be collected. Are there any exemptions of that would either. Those are the items that need to be collected or any exemptions that would impact credit unions in any particular way, other than.
Yeah, because this is hunter the answer's. Yes, there are some exemptions. It's important to know there are actually two. Separate partial exemptions. And they relieve some hummed the filers from having to submit all 48 data points. Generally they're only required to submit 22 of them if they are subject to the exempt partial exemption and not the other 26 data point. So the first partial exemption is for closed and transactions only.
So if the credit union originated fewer than 500 covered, closed end mortgages, and each of the two preceding calendar years, it only asked to report the 22 data points for closed end transactions. Now that doesn't affect reporting for the open den transactions. However, there is a second. Partial exemption for open den transactions. So it's basically the same as the partial exemption for closed end transactions where the standards are the same. If the credit union.
Originated less than 500 open den transactions that are subject to the Humsa. The reporting for the open den transactions. It is only for the 22 data points. And of course that does not affect the reporting for the closed end transactions. So they are, there are separate exemptions, even though the standards for each is the same.
Interesting.
Now if the credit union that is required to collect and report on the data it must record it in what's called a loan application register or LAR you'll hear that term in connection with Humsa. And there is a requirement that the financial institution subject to hump up. The lore within 30 days of the end of each calendar quarter. So for example, for this year, we're coming on the what's today. We're when we're recording this as close to the end of April.
Very soon the LAR must contain all the transaction data for January, February and March of 2020. Now, except for some very large institutions, I think there might be just a couple of credit unions that fall in that category. That data is only collected and the Lara is being updated and it's internal. It's not being reported until the end of the there are two the next year, the reporting date of March 1st, 2023, but there is a requirement that every quarter of larvae.
And just so you're aware the database to which the data is submitted. We'll accept hum. The Lars if they are kept in a format that's compatible with the database. So that actually compiling on a quarterly basis is a help because it makes it much easier to re report the annual data when that annual data is due.
It's like a reconciling your bank account once a month or once a year,
Exactly. Exactly. Okay. So
you go ahead.
I just going to say that as I just want to reiterate that the actual submission is March 1st, it in the year following the calendar year that the data is collected in.
So this, so March of 20, 22, they would've collected four 20.
Correct.
Got it.
Exactly. And the data that's being collected now in 2022 will be reported in 2020. So technically the data is submitted to the financial regulator. So for all federally insured credit union, That includes state charters that are federally insured. That date is being submitted to NCUA. However, it is submitted to a database that is maintained by the CFPB. And you can actually submit it through the FFF. Excuse me, the F I E web. The FFIC is the federal financial institutions examination council.
But technically the data is being submitted to the regulator. So it's being for credit unions, being submitted to the NCUA. The CFPB takes the data and provides it to each of the federal regulators.
So once each of the federal regulator gets it and it's been reported what do they do with it? So NCUA has it you said the CFPB has it. I think they share it with a couple other agencies, like HUD and DOJ. Could you explain now that, that is in the domain of these federal agencies, what happened.
Sure. There's the credit union data includes all the data that is submitted. Some of that data has some identifiers in it. So that is non-public data to protect the privacy of the individuals whose transactions are being reported, but NCUA will get the data and. The agency uses it and developing its fair lending program.
The different ways that we'll look at the data to look to for compliance for the industry as a whole, but also then to look for specific credit unions to see if there are some sort of outliers in the data that raise a question, not necessarily a red flag, but just a question because sometimes outlier type datas there's. reasonable explanation for it. It's not a violation but sometimes it can become a red flag that there might be some issue with the quality of the data.
Now the data is available to the public. Although the data points that have identifier information in them are not available to the public for privacy purposes. I said,
So I think they CA they call that PII personally identifiable information that's stripped out in the public versions. Got it.
And it's in addition to the individual regulators, getting the data for their regulated institutions other agencies will get it. HUD gets the, have the data to use for its programs. CFPB can look at it for national trends and actually see a Phoebe every year. We'll release. The results of its analysis of all the data and compare it to previous.
Excellent. Interesting. So how would you, if you were running a credit union or suggesting to a credit union on how they could use their home, the data either as it relates to their institution and, or in comparison to, for example, that CFPB report where they're showing the trends that happened last year what would you recommend a credit union do with their own home today?
Yeah, the data is very useful for an individual institution. It can look at it to see how well it is serving its members and the community. And there, it can lead to ways to improve the fair lending program. The credit union can compare how it is performing with the similar similarly sized institutions and its geographic area, whether they be credit unions or banks or non-depository lenders and depending on. The size of the mortgage lending operation.
It might even be worthwhile for the credit unions to consider getting a software that does more sophisticated analysis of the data. There's a number of different programs out there. Just for everybody's information. The NCUA uses a program called lending patterns. It's sold by a company called compliance tech. I'm not thoroughly recommending that or advocating for it, but the benefit of using that is that it's the same software that your regulator is using.
So in theory, you should be getting the same results when you do any kind of analysis using the.
That's that's good to know. I think our listeners will appreciate that you pointed that resource out. And the. fact that NCUA utilizes them. Would have to be viewed, in my mind as a positive, because it's almost a running headstart. And again that's not an endorsement either, but I think there's some value to that, obviously. Joe, if w we just passed April 15th or April 18th, which was the IRS tax filing date.
And a government loves their deadlines so that people put their information in on time. And if a credit union were to miss a filing deadline
First thing is it should do whatever it can to get the information filed because late filing is a violation of Hamida. But also not filing is a violation of Conda. Excuse me. However, I'm not filing is a far more serious violation than late filing. So the best thing to do is file it. The NCUA will contact those who filed late each year and recommend that. They make efforts in subsequent years not to do that. Generally speaking, the NCUA will wait for several violations before taking any action.
But the bottom line is even if you're late file the data.
Got it. And as you mentioned, NCUA can assess civil money penalties. They use that. Very carefully before they consider that whether you have to be a multiply multiple time, late person or late credit union, it's not it's civil money. Penalties is not something NCUA throws around Willy nilly, but it is there to ensure bad actors do comply with the law. Re we've mentioned some resources.
Can you are there any other resources that you want to highlight or any any that you would like to re highlight here? As we get closer to the end of our show today,
Sure. The first thing is I direct everybody to the NCUA is regulatory alerts. I hope everybody. It was sent to them as their issue, but every year, the NCUA issues to regulatory alerts on Hamida near the beginning of the year. I believe this year they went out the first week of February. One of reminds credit unions who are subject to Hamda to report the previous year's data. So this year is, would have talked about 20, 20 ones data and the.
Provides the standards and requirements for collecting and reporting 20, 22 data. So they get, they get both ends of the spectrum with those regulatory alerts. So they provide. More detailed information that I've discussed, and they also have links to some of the important references, which I'm going to talk about now. I did mention the website. It's FFR. It's showing well, excuse me, www.ffiec.gov. It has a number of hummed references and it actually has a breakdown by year.
If there's any issues with previous years. Probably the most important resource on that website is what's called the, getting it right guide. Some people refer to it by its acronym, which has a girl, which I think is a awkward word, but the getting it right. Guide really is almost one stop shopping because it goes over.
Pretty much every detail and Hyundai, you can imagine it has charts on who is required to comply, what data is being collected, what data is subject to the partial exemptions we discussed and doesn't have to be submitted. It's it really does have a lot of individual resources. And then finally the consumer financial protection bureau website, which is www.consumerfinance.gov. If you can find the compliance resources there, there is one for and it also has a lot of different resources.
Very good, Joe. Before we wrap up here are there any sanitized examples of situations that you recall from your time in charge of this program, where you saw that a credit union? Failed to do what it needed to do and how that might've impacted the credit union relative to their examination and, or, the steps that credit union had to take to get back within the confines of the law. Anything, jump into your head.
Well, a couple of things there, there often are times where the data in the LAR is not accurate. So what's gets submitted to the website is not accurate. There actually are standards established by NCUA, so that there's a threshold. A few minor errors. Pretty much, nothing happens. We just requested that the credit unions ma fix, fix the errors internally.
But if the errors exceed a certain threshold, the NCUA will require the credit union to not only correct the errors, but to resubmit the data. It's not an area where a civil penalty, civil money penalties are contemplated. As long as the credit union does comply with the requirement to resubmit the data. On occasion, there are instances where the data indicates a lack of compliance with some fair lending laws.
The either that can be the basis for the NCUA putting a credit union on the list for a fair lending exam. Or if it's discovered in, during a fair lending exam that can require the credit union to change its policies and procedures so that it is complying with the equal credit opportunity act or some other fair lending.
Okay. And in those scenarios the. Credit union could receive a document resolution or examiner finding requiring action on their part. That would be in, in discussions with the people who are the fair lending examiners that you use to supervise. Do I have that right?
Yeah, that's correct. And the fair lending program uses the same type of standards and the same type of tools that are used for the exams by the regional offices, the standard exams.
Got it. Very good. Any Joe, any final thoughts on this topic before, before we wrap up?
just think it's important for credit unions to understand though, that even though complying with Honda can be a chore, that there is a valid reason for collecting the hum to data. And that is to try and ensure that mortgage credit is offered and extended to everybody based on mortgage related criteria. Yeah. To prevent discrimination, to help prevent red lining. So it, if you approach complying with how the, from that angle, I think you can see why it has to be done.
It's a benefit for the members and it's a benefit to the economy as a whole.
Or Joe, that's a great place to wrap. I want to draw. I want to thank you for your time today and to the audience. I want to thank you for your time and for listening hope, hopefully we'll see you next time. And until next time, this is mark Treichel with flying colors.