The government wants to know more about your mortgage
The federal government already collects certain information from mortgage lenders nationwide. Under the Home Mortgage Disclosure Act (HMDA), which became law in 1975, mortgage lenders report loan type and term, property location, and the race, ethnicity and sex of the borrower.
The Consumer Financial Protection Bureau (CFPB) has taken over rulemaking authority for the HMDA and wants to collect even more information from mortgage transactions as well as improve upon the way the information is both collected and shared. The CFPB has already made its formal request to do so, which means that an industry panel will begin debating the bureau's request and finalizing what information they should collect.
"We want there to be better information, better collection, and better access to this important information," said Richard Cordray, director of the CFPB, in a prepared statement. With this data, the bureau can help better identify and stop predatory practices, Cordray said.
"Better public HMDA data would help us improve upon an important resource that already allows regulators, government agencies, housing groups and consumer rights groups to study and monitor the single most important consumer financial product in the United States: the mortgage loan," Cordray said.
New information to report
Here's the new information the CFPB wants to collect:
- Interest rates, including teaser rates
- Origination fees
- Discount points
- Reasons behind loan rejections
- Debt-to-income ratios
- Borrower age
- Credit score
- QM or non-QM
Gary Painter, director of research at the USC Lusk Center for Real Estate in Los Angeles, says that there is always a benefit to collecting more information about important financial transactions. And few transactions are as important to the U.S. economy as are mortgage loans.
Already, Painter says, the information collected under the HMDA has provided important data to regulators on lending patterns in particular parts of the country.
Is the extra data worth the added cost?
That's a question that can only be answered after a more detailed study of the proposal, Painter says.
"The right question is, 'Do the benefits outweigh the cost of the additional reporting?'" Painter says. "I don't know the answer to that yet."
Painter also says that no matter how much new information the bureau collects, it's not reasonable to expect the new data to allow regulators to completely stamp out mortgage abuse or fraud.
"There is no one policy that can prevent all forms of discrimination or fraud," Painter says.
Mortgage costs could increase
Cameron Findlay, chief economist with Discover Home Loans in Irvine, Calif., says that the new reporting requirements could make mortgage loans more expensive.
"This request implies additional regulation and compliance costs on the industry, which would directly lead to higher costs for mortgage origination for consumers," Findlay says.
Findlay also says that because the CFPB is still a relatively new agency, it lacks a proven track record of properly using the information it collects.
What if the bureau releases information showing high default rates in a certain city? Borrowers even with stellar credit and debt-to-income ratios might struggle to qualify for a loan simply because they happen to live in a city with higher default rates, Findlay says.
More is not always better
"More is not always better," Findlay says. "There needs to be a consensus on what would or would not be made public."
That consensus might or might not come later this year. Cordray said that the CFPB is now forming a Small Business Review Panel to listen to the concerns or questions of banks, credit unions and others that would be impacted by the new collection rules. The bureau also plans to seek comment from industry and consumer groups before proposing an official rule later this year and then seeking broader feedback from the public. That said, no change would likely happen until 2015 at the earliest.
Don Frommeyer, president of the National Association of Mortgage Brokers and senior vice president with Amtrust Mortgage Funding in Carmel, Ind., says that he's eager to see exactly what new information the bureau will request in an official proposal.
"Getting better up-to-date information is good," he says. "But there is a limit. Will the bureau be asking for Social Security numbers and account numbers next? What are they getting after? It will be interesting to see."
Dan Rafter has written about mortgage and financial topis for more than 15 years. He has written for such publications as the Washington Post, Chicago Tribune, Consumers Digest and many others.
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