CFPB proposes off-balanced approach to public disclosure of HMDA data

by Ballard Spahr LLP
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In October 2015, the CFPB adopted significant changes to the rules under the Home Mortgage Disclosure Act (HMDA).  Among the changes, the items of information to be collected and reported under HMDA are greatly expanded, with some items being specified by Congress in the Dodd-Frank Act and others being added by the CFPB.  The CFPB is now proposing policy guidance regarding what items of application-level information will be disclosed to the public.  The comment deadline is November 24, 2017.

Currently, institutions that report HMDA data must publicly disclose their HMDA data on an application-level basis. HMDA requires the modification of data released to the public “for the purpose of protecting the privacy interests of mortgage applicants.”  Currently, before disclosing application-level data, institutions remove the application or loan number, the date the application was received, and the date the institution took final action on the application.  However, there are concerns that by combining the current publicly available HMDA data with other data sources, the identity of each applicant can be determined.  As the applicant’s income is one data item that is publicly disclosed, there is a concern that the income of individual applicants can be determined.

Going forward, institutions will report HMDA data to the CFPB, and the CFPB will disclose HMDA data publicly, including application-level data for each institution.  The significant expansion of HMDA data information made by the October 2015 revisions raised consumer privacy and related concerns associated with the public disclosure of the information.  New data items include, among other items, the applicant’s age, income (which is currently reported), credit score, and debt-to-income ratio; the automated underwriting results; the property address; loan cost information; and, for denied applications, the principal denial reasons.

When the CFPB adopted the October 2015 revisions, it deferred making a decision on which elements of the expanded HMDA data would be reported on an application-level basis.  However, the CFPB indicated that it would use a balancing test to decide what information to disclose publicly, and would allow public input on the information that it proposed to disclose.  The CFPB advised that “[c]onsidering the public disclosure of HMDA data as a whole, applicant and borrower privacy interests arise under the balancing test only where the disclosure of HMDA data may both substantially facilitate the identification of an applicant or borrower in the data and disclose information about the applicant or borrower that is not otherwise public and may be harmful or sensitive.”

The CFPB proposes to make all of the HMDA data available to the public on an application-level basis, except as follows:

  • The following information would not be disclosed to the public (the non-disclosure of the first three items is consistent with current disclosure practices):
    • The universal loan identifier.
    • The date the application was received or the date shown on the application form (whichever was reported).
    • The date of the action taken on the application.
    • The property address.
    • The credit score(s).
    • The NMLS identifier for the mortgage loan originator.
    • The automated underwriting system result.
  • The free form text fields for the following (the standard fields reported would be disclosed):
    • The applicant’s race and ethnicity.
    • The name and version of the credit scoring model.
    • The principal reason(s) for denial.
    • The automated underwriting system name.
  • The CFPB proposes to disclose in a modified format the loan amount, age of the applicant, the applicant’s debt-to-income ratio, and the property value.
    • For the loan amount, the CFPB proposes to disclose:
      • The midpoint for the $10,000 interval into which the reported value falls, such as $115,000 for amounts of $110,000 to less than $120,000. (Currently, the loan amount is reported to the nearest $1,000.)
      • Whether the reported loan amount exceeds the Fannie Mae and Freddie Mac conforming loan limit.
    • For the age of the applicant, the CFPB proposes to disclose:
      • Ages of applicants in the following ranges: Under 25, 25 to 34, 35 to 44, 45 to 54, 55 to 64, 65 to 74, and over 74.
      • Whether the reported age is 62 or over. For purposes of the Equal Credit Opportunity Act, a person is considered elderly if they are age 62 or over.
    • For the debt-to-income ratio, the CFPB proposes to disclose:
      • The reported debt-to-income ratio for reported values of 40% to less than 50%, and other debt-to-income ratios in the following ranges: under 20%, 20% to less than 30%, 30% to less than 40%, 50% to less than 60% and 60% or higher.
    • For the property value, the CFPB proposes to disclose the midpoint for the $10,000 interval into which the reported value falls, such as $115,000 for amounts of $110,000 to less than $120,000.

Although the loan amount will now be reported in the applicable $10,000 interval and not to the nearest $1,000, the concern is that the totality of the information that is publicly available will make it easier than it is today to determine the identity of the applicant.  Thus, as proposed by the CFPB, there is a risk that a significant amount of information that consumers view as confidential will become publicly available.  As a result, the CFPB will likely face intense criticism of its balancing of the privacy needs of consumers with the disclosure of HMDA data.

Additionally, because the increase in the amount of HMDA data elements means that the CFPB will now store very confidential consumer information in its records, data security concerns must be considered.  The CFPB rebuffed data security concerns raised by parties commenting on the proposed HMDA data expansion, stating that it “has analyzed these industry comments carefully and has determined that any risks to applicant and borrower privacy created by the compilation and reporting of the data required under the final rule are justified by the benefits of the data in light of HMDA’s purposes even though its data security has been cited as being deficient.”  While the CFPB was referring to a Government Accountability Office report finding issues with CFPB data security, as we have reported previously on several occasions the CFPB’s own Office of Inspector General has found deficiencies in CFPB data security. (See here, here and here.)

One must wonder why the CFPB views the collection and disclosure of expansive HMDA information as being more important than addressing privacy and data security risks to consumers.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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