December 2022 Newsletters

Back to 25: HMDA Threshold Changing Again?

If you find yourself confused about the often-changing HMDA thresholds, when to collect, and when to report you’re not alone. Between the 2015 thresholds, the temporary threshold increases, and the 2020 thresholds it’s a lot to follow. Recently a federal court stepped in and confused things even more by ruling that part of the 2020 changes were done without the proper authority, meaning that the Consumer Financial Protection Bureau (CFPB) will likely change the regulation again.

The regulation currently states the threshold for reporting covered loans is 100 for closed end and 200 for open end. Meaning that if an institution originated in each of the two previous years, 100 closed-end covered loans or 200 open-end covered loans, then the data associated with those loans is HMDA reportable. This is the current regulation and are the 2020 threshold changes that have been in place since mid-2020.

A federal court confused things last month by stating the threshold of 100 for reporting closed-end covered loans was chosen without properly documenting the justification for such a number, and as such the CFPB had no authority to make this change in 2020, so the threshold will revert back to the 2015 threshold of 25.

The 2015 rule set the threshold for reporting covered loans at 25 for closed end and 100 for open end. As you may remember, the open-end threshold was temporarily increased to 500, but after the 2020 rule, the thresholds were set at 100 for closed end and 200 for open end. The 2020 rule took effect mid-year such that institutions that were no longer going to be HMDA reporters due to the increased threshold for closed-end covered loans would stop collecting data on July 1, 2020.

So, where are we now? The recent changes come from a court ruling, so the CFPB has the right to appeal the court’s ruling to keep the threshold at 100 for closed-end covered loans, as is currently reflected in the regulation. However, the CFPB has been silent about their intentions going forward, and it is not widely thought that the CFPB will appeal this decision. The effects of that should be that the threshold for closed-end covered loans should revert back to 25. The court didn’t disturb the open-end thresholds, so those will remain at the 2020 levels and continue to be 200 going forward.

According to the CFPB’s data, this change should impact quite a few financial institutions, and many will be HMDA reporters once the threshold reverts to 25 that are not currently HMDA reporters with the threshold at 100. However, how and when the closed-end threshold will revert to 25 is not yet known. Initially, many believed the threshold of 25 would be re-implemented on January 1, 2023. But, here at the beginning of December, it’s still unclear what the timing will be. Financial institutions are required to follow the regulation until it changes, and despite actions by a court, the regulation hasn’t changed yet.  Only the CFPB has the authority to actually make changes to the published HMDA regulation.

For those institutions that had 25 or more covered transactions in each of the previous two years, start to think about how you will reimplement or implement a full HMDA program (policies, training, third parties, etc.), because we anticipate changes are coming, but for now we’re waiting on the CFPB to provide further details.

If you have questions about how these changes might impact you or your HMDA reporting, feel free to reach out to us on the Hotline and we’ll walk you through the best information currently available.

HMDA Threshold Change: CFPB Weighs In

After delaying writing on the topic as long as we felt appropriate, in last week’s newsletter we wrote about the impending changes to the closed-end HMDA threshold, while still awaiting thoughts from the Consumer Financial Protection Bureau (CFPB) on the matter. For a brief refresher from last week, recently a federal court ruled that the CFPB’s 2020 increase of the closed-end reporting threshold from 25 to 100 was done without proper authority, so the court reversed the change and once again made the closed-end reporting threshold 25 closed-end loans in each of the two previous years. Without any feedback on the matter from the CFPB, however, it was not known when these changes would go into effect for financial institutions.

Well, better late than never, this week the CFPB finally broke their silence on the matter. In a blog post the CFPB indicated that they do not intend to initiate enforcement actions or cite HMDA violations for failures to report closed-end mortgage loan data collected in 2022, 2021, or 2020 for institutions that originated at least 25 closed-end mortgage loans in each of the two preceding calendar years but fewer than 100 closed-end mortgage loans in either or both of the two preceding calendar years.

What is unspoken in the CFPB’s post is when the collection and reporting begin for those institutions who originated at least 25 closed-end mortgage loans in 2022 and 2021. The assumption, based on what the CFPB has said is that as of January 1, 2023, the collection of data should begin, in anticipation of being reported in March 2024.

For those institutions that had 25 or more covered transactions in each of the previous two years, now is the time to work on implementing a full HMDA program (policies, training, third parties, etc.), because if anything could make the rushed nature of HMDA data collection more troublesome it is trying to implement changes during the last three weeks of the year when so many people seem to be out due to illness, holidays or vacations.

Whether you’re a new HMDA reporter or were previously a reporter and will once again be a reporter in 2023, it is a good time to review our HMDA tools, specifically our Regulation C HMDA Procedures, and our Regulation C Policy. See also our HMDA toolkit for other valuable tools as you re-find your stride for HMDA reporting. For a refresher on training see our HMDA Basics webinar, our HMDA Data Points / Loan Application Register webinar, or our General HMDA webinar.

If you have questions about how these changes might impact you or your HMDA reporting, feel free to reach out to us on the Hotline and we’ll walk you through the best information currently available.

Buydowns, HOEPA, and Points & Fees

In the current market of higher interest rates, we’ve been seeing trends in lending such as both a buyer and seller paying to buy down a loan’s interest rate. When this happens, one of the more confusing questions that arises is whether the amount that the seller is paying is included in the High-Cost Mortgage/HOEPA loan points and fees test. Generally, the answer is “no,” but there are circumstances in which the answer is, “yes.” The existing regulation, commentary, and guidance are not as clear as you’d like them to be, but the determining factor in whether the answer to the above is, “no” or “yes,” appears to be whether an agreement between the parties requires the buydown amount provided by the seller to be paid into an escrow account.

The Rule

It’s a complex analysis, but the “standard” rule is that seller’s points are not included in the finance charge, therefore they are excluded from being considered points and fees. The part of the regulation that specifically discusses finance charges (1026.4) states that seller’s points, or a rate buydown paid for by the seller is excluded from the finance charge. The specific citation for this is 12 CFR 1026.4(c)(5). The commentary further explains that buyer’s points are finance charges but reaffirms that seller’s points are not. Further, the commentary to the part of the regulation that discusses High-Cost Mortgages/HOEPA loans (1026.32) states that because seller’s points are excluded from the finance charge, they are also be excluded from points and fees. The commentary goes on to clarify that not all seller-paid fees are excluded from the points and fees test, but seller’s points are excluded. The specific citation for this is Commentary to 12 CFR 1026.32(b)(1)-2.iii.

The Exception to the Rule

The “exception” to the standard rule involves a fee being required to be paid into escrow. The part of the regulation that discusses High-Cost Mortgages/HOEPA loans (1026.32) states that you’d generally include in the points and fees test all of what are described as “real estate related fees” listed in the finance charges section of Regulation Z found in 1026.4(c)(7). However, certain real estate related fees would not be included in points and fees, such as those for which the charge is reasonable, the creditor receives no compensation, and the charge is not paid to an affiliate of the creditor. The specific citation for this is 12 CFR 1026.32(b)(1)(iii).

Since seller’s points would be considered compensation to the creditor, seller’s points would be among those real estate related fees included in the points and fees test, if they’re considered “real estate related fees” by 1026.4(c)(7). What determines whether seller’s points are included in the real estate related fees is whether the amount is required to be paid into escrow, provided that the amounts would not have otherwise been included in the finance charge. The specific citation for this is 12 CFR 1026.4(c)(7)(v).  We know that based on the aforementioned “standard” rule that seller’s points are not included in the finance charge, so if the amount of the seller’s points is required by an agreement between the parties to be paid into escrow, then you’d include these seller’s points in the points and fees test. Ultimately it will depend on exactly how this is spelled out within the agreement between the parties as to whether these seller’s points get included in the points and fees test.

Other Considerations

Also, keep in mind that the above is solely focused on the regulatory requirements, and that if any investor is involved, the investor could have further restrictions on these buydowns, for example, the restrictions found in Fannie Mae’s Selling Guide.

If you have any questions about seller’s points and their inclusion or exclusion as points and fees, reach out to us on the hotline and we’ll walk you through the citations to help you make a determination.

The Business Days of Christmas & New Year’s

It’s that special time of year when banks encounter two legal public holidays within a week of each other. There’s always at least a little confusion surrounding holidays, observed holidays, and what gets counted for the purpose of complying with regulatory requirements. To confuse things a little more, not every institution is closed on every holiday, but Christmas & New Year’s Day are popular days for nearly everyone to be closed for business. Adding a little more intrigue to this puzzle, both Christmas in 2022 and New Year’s Day in 2023 fall on a Sunday.

When a holiday falls on a Sunday, for most Federal employees the following Monday will be observed as a holiday for pay and leave purposes. For example, when Christmas Day (December 25) falls on a Sunday this year, Federal offices and other entities will observe the holiday on the following Monday (December 26). In cases where the more “specific” definition of business day applies, such as for the right of rescission, the observed holiday (in this example, Monday, December 26) is counted a business day, even though federal offices will be closed on that day.  The same is true for Monday January 2. Both the Monday after Christmas and the Monday after New Year’s Day will be considered business days where the “specific” definition of business day applies.

The “specific” definition is all calendar days except Sundays and the legal public holidays specified in 5 U.S.C. 6103(a). Of the legal public holidays, five are identified by an exact date: New Year’s Day (January 1), Juneteenth National Independence Day (June 19), Independence Day (July 4); Veterans Day (November 11), and Christmas Day (December 25). Because these five holidays always fall on the same date, they regularly fall on either a Saturday or Sunday.

Although most of the “specific” definition of business day requirements in Regulation Z apply to the timing of the Loan Estimate and Closing Disclosure under the TRID requirements found in 12 CFR § 1026.19, there are other areas affected as well. The right of rescission, escrow cancellation, high-cost mortgages (HCM/HOEPA), reverse mortgages, and private education loans all have aspects subject to the “specific” definition. For example, for rescission purposes, if a loan is closed on Friday December 23, the next day, Saturday December 24 is Day 1 of the 3-day rescission period, Sunday Christmas Day is not counted, Monday December 26 is Day 2, Tuesday December 27 is Day 3, and the funds may be released on Wednesday December 28.

There is also a more “general” definition of business day which means a day on which the bank’s offices are open to the public for carrying on substantially all its business functions. Banks run into this definition regularly regarding whether to count Saturdays as business days. Regarding holidays, whether Monday December 26 or Monday January 2 will be considered a business day for those requirements which fall under the “general” definition of business day, it will depend on whether the bank is open on those days for carrying out substantially all business functions. If the bank is closed on Monday December 26 or Monday January 2, the bank will not consider those business days for purposes of the “general” definition of business day. The regulations which use the “general” definition of business day include Regulation E, Regulation X, and all of the Regulation Z requirements not subject to the “specific” definition.

Not all regulations define the term “business day,” such as Regulation B, and in those instances it’s up to bank policy to determine what a business day is for the purposes of those regulations.

As always, if you have any questions about business days, which requirements apply, and how view a specific date or day of the week, reach out to us on the hotline.

2023 Annual Threshold Adjustments: HCM/HOEPA, QMs, and Credit Cards

The CFPB has recently published annual Regulation Z threshold adjustments months later than they normally publish them, which has caused quite a frenzy on our hotline. However, the crisis has been averted, as on December 21, the CFPB published adjustments to the High-Cost Mortgage (HCM) / Home Ownership and Equity Protection Act (HOEPA), Qualified Mortgages (QMs), and Credit Card thresholds which go into effect January 1, 2023.

HOEPA total loan amount

Under § 1026.32(a)(1)(ii)(A) and (B) a loan may be a HCM/HOEPA due to points and fees the creditor is charging, depending on whether the total loan amount is. The regulation states this threshold to be $20,000, which is recalculated by the CFPB annually. The threshold for 2022 is $22,969, and the threshold for 2023 will be $24,866.

HOEPA points-and-fees

Under § 1026.32(a)(1)(ii)(B), the HOEPA points-and-fees threshold is the lesser of 8% of the total loan amount or $1,000, which is recalculated by the CFPB annually. The threshold for 2022 is $1,148, and the threshold for 2023 will be $1,243.

Qualified Mortgages – General QMs

On December 10, 2020 the General QM loan definition in § 1026.43(e)(2) was amended, establishing pricing thresholds in § 1026.43(e)(2)(vi)(A) through (F) based on the spread of a loan’s Annual Percentage Rate (APR) compared to the Average Prime Offer Rate (APOR) for a comparable transaction as of the date the interest rate is set.

Under § 1026.43(e)(2)(vi), a loan is a QM if the APR does not exceed the APOR for a comparable transaction as of the date the interest rate is set by 2.25%, 3.5%, or 6.5% depending on whether it is a first or subordinate lien, and whether it is secured by a manufactured home. The loan amount pricing thresholds are recalculated by the CFPB annually. A loan is a QM if APR doesn’t exceed APOR by:

• First lien
  • 25% or more:
    • The 2022 loan amount is $114,847 or more
    • The 2023 loan amount will be $124,332 or more
  • 5% or more:
    • The 2022 loan amount is $68,908 to $114,846
    • The 2023 loan amount will be $74,599 to $124,331
  • 5% or more:
    • The 2022 loan amount is $68,907 or less
    • The 2023 loan amount will be $74,598 or less
  • First lien secured by a manufactured home
    • 5% or more
      • The 2022 loan amount is $114,846 or less
      • The 2023 loan amount will be $124,330 or less
    • Subordinate lien
      • 5% or more:
        • The 2022 loan amount is $68,908 or more
        • The 2023 loan amount will be $74,599 or more
      • 5 or more
        • The 2022 loan amount is $68,907 or less
        • The 2023 loan amount will be $74,598 or less

Points-and fees limits for all QMs

Under § 1026.43(e)(3)(i), a covered transaction is not a QM if the transaction’s total points and fees exceed either a percentage or dollar amount threshold, depending on the loan amount.

• 3 percent of the loan amount
  • The 2022 loan amount is $114,847 or more
  • The 2023 loan amount will be $124,331 or more
• $3,445 in 2022, will be $3,730 in 2023 for loan amounts
  • The 2022 loan amount is $68,908 to $114,846
  • The 2023 loan amount will be $74,599 to $124,330
• 5 percent of the loan amount
  • The 2022 loan amount is $22,969 to $68,907
  • The 2023 loan amount will be $24,866 to $74,598
• $1,148 in 2022, will be $1,243 in 2023 for loan amounts
  • The 2022 loan amount is $14,356 to $22,968
  • The 2023 loan amount will be $15,541 to $24,865
• 8 percent of the loan amount
  • The 2022 loan amount is $14,355 or less
  • The 2023 loan amount will be $15,540 or less

Credit Card Annual Adjustments

Sections 1026.6(b)(2)(iii) and 1026.60(b)(3) require creditors to disclose any minimum interest charge exceeding $1.00 that could be imposed during a billing cycle, which is recalculated by the CFPB annually. If the change in the adjusted minimum has risen by a whole dollar, the CFPB increases the minimum interest charge amounts in the regulation by $1.00. The threshold for 2022 is $1.00, and based on the CFPB’s recalculation, there will not be an increase in the minimum interest charge threshold, so the current threshold of $1.00 will remain in effect during 2023.

These are not the only adjustments published by the CFPB for 2023, but are recent ones of note. If you have any questions about these thresholds or any of the others, feel free to reach out to us on the hotline.

Table Summary of Threshold Adjustments