If you have a pulse and work in compliance, chances are you spent the beginning of March working to get your HMDA LAR data submitted. Knowing that, we can’t blame you if some of the major headlines in the banking and compliance world slipped past your radar!
We’ve curated the biggest headlines from the past few weeks, just for you. And, if you’re wondering what to do now that you’re done with HMDA, make sure to download our “What To Do After Filing for HMDA” Checklist.
We got some important news from the CFPB, as they formally requested input on their new regulations and rule-making authorities.
“The bureau issued a request for information and is requesting comments and information from interested parties on its adopted regulations and new rule-making authorities. The CFPB explained it is considering whether it should amend any rules it has issued since its creation or issue rules under new rule-making authority provided for by the Dodd-Frank Act.”
This has the potential to affect a majority of the compliance and financial communities, and it is also the eighth RFI announce by the CFPB in accordance with Mick Mulvaney’s call for evidence to make certain that the Bureau is “fulfilling its proper and appropriate functions to best protect consumers.”
According to the CFPB, these RFI’s will “provide an opportunity for the public to submit feedback and suggest ways to improve outcomes for both consumers and covered entities.”
Previous RFI’s in this series include its rulemaking process, the usefulness of its consumer complaint database, its supervision process, its enforcement process, its administrative adjudications and its civil investigative demands.
The CFPB will begin accepting comments on March 19th, 2018 and will be open for comment for 90 days.
One big story from compliance and banking circles came in late February as Pennsylvania’s state treasurer and attorney general announced investigations into “pervasive redlining” in mortgage lending in Philadelphia. Concurrent with this happening was Philadelphia’s City Council announcing its own investigation into the same practice.
The news outlet, Reveal “analyzed millions of mortgage records and found 61 metros across the country where people of color were significantly more likely to be denied a conventional home purchase loan, even after taking into account how much money an applicant made, the size of the loan they were trying to get and the neighborhood where they wanted to buy.”
While Redlining is an issue across America, Reveal found that “African Americans were 2.7 times as likely to be denied a conventional mortgage” in Philadelphia despite making up similar proportions of the population as white applicants, who were ten times as likely to receive “conventional mortgage loans in 2015 and 2016.”
State Attorney General, Josh Shapiro was outraged by findings as sought to condemn such practices through his investigation. On the other hand, Joe Torsella, Pennsylvania Treasurer, is focusing his investigation on the three major financial institutions that do business with the state: Wells Fargo, Santander Bank, and PNC Financial Services. These key stats put into perspective why those institutions are being targeted:
The banks have refuted that analysis and claim that the findings dramatize alleged discrimination. For more information on the Reveal analysis and ensuing investigations go here.
Earlier this month, the OCC published its latest edition of their Community Developments Investments newsletter. This one was called “Expanding Housing Opportunities: Single-Family Rehabilitation Financing Programs.”
The document is heavily laden with “resources and programs for national banks and federal savings associations to utilize to assist in community revitalization efforts.”
In the words of the OCC:
“The publication also covers significant revitalization initiatives in communities across America, explains the ways in which loan programs sponsored by the Federal Housing Administration and Fannie Mae are supporting single-family rehabilitation financing initiatives, and notes that banks participating in such programs may qualify for Community Reinvestment Act consideration during evaluation."
For more details on what’s in this document, follow the link on this page.
On March 14th of last week, the Senate passed the Economic Growth, Regulatory Relief, and Consumer Protection Act (the Act), by a vote of 67 to 31. It’s important to note that this doesn’t overhaul the Dodd-Frank Act by measures that were found in the Financial CHOICE Act of 2017 (CHOICE Act); however, it would provide financial institutions with relief from a number of Dodd-Frank provisions.
A key aspect of this act will be to “reduce the regulatory burdens on financial institutions, particularly financial institutions with total assets of less than $10 billion."
Furthermore, the act will seek to allow bank holding companies with up to $3B in total assets to comply with “less restrictive debt-to-equity limitations instead of consolidated capital requirements.”
Allegedly, this should help promote growth by smaller bank holding companies, but that remains to be seen.
It is expected that “larger institutions should benefit from the higher asset thresholds that would apply to systemically important banks subject to enhanced prudential standards. The higher thresholds may lead to increased merger activity between and among regional and super regional banks.”
You can find a more in-depth breakdown of the Act’s proposed changes here. And, if you have any further questions about how this could affect your institution, don’t hesitate to reach out to one of our experienced consultants.
One of the major questions that arises with the legislation discussed above is, "will the act make it easier for banks to discriminate?"
Discrimination is a focal point when discussing Fair Lending-related topics; however, with this act, there appears to be a specific provision -- a carve-out for small lenders from certain mortgage data reporting requirements -- that has caused much debate.
The act exempts “banks and credit unions that provide fewer than 500 mortgages a year from having to report on a series of expanded data points required by the Home Mortgage Disclosure Act.” HMDA was created in order to mitigate unfair lending practices and patterns that were negatively affecting minority groups in the 1970s.
In 2015, 25 data points such as credit score and mortgage loan terms were added to HMDA, and it is these data points (and only these data points) that are set to be eliminated by the upcoming legislation.
The sponsors of the former bill added language that stated: “small banks that receive poor grades on two consecutive Community Reinvestment Act exams will be subject to the expanded reporting.” In addition to this, the act also made is so that a study has to take place after two years in order to evaluate the “impact that the exemptions have had on HMDA data.”
However, while to some, this may seem like a helpful deterrent against discrimination, opponents of the act have called it a “ridiculous fig leaf” citing that a majority of institutions earn a “satisfactory rating or higher” on their exams despite the presence of discrimination in the mortgage lending industry.
There has also been growing discontent over how many institutions would be covered by this carve-out. According to an opinion piece by Victoria Finkle in National Mortgage News, “while supporters note that the vast majority of mortgage loans would be subject to full HMDA reporting, a significant portion — up to 85% — of banks would be let off the hook. This reflects the fact that the top mortgage lenders make up such a significant portion of the overall market.”
If you’re interested in learning more, you can read the full article here.
Over the past several we’ve been increasingly seeing stories about artificial intelligence in the banking and finance world. And while this may have initially caused acute panic and hysteria over imaginings of AI-powered robots taking over, the real story isn’t as dramatic albeit slightly more nuanced.
The scary: A recent report from the World Economic Forum predicted that intelligent automation could eliminate five million jobs in developed countries by 2020.
The not-so-scary: Many executives in Japan, a country that is at the forefront of the AI movement, have stated that this type of intelligent automation is necessary to replace jobs left vacant by an aging workforce; a problem that is expected to affect America in the coming decades.
In statistics further showing that the AI story is more complicated than what the surface shows is backed up by Accenture research that suggests that for those “firms who embrace intelligent automation, revenues could rise by 32% by 2022, but critically employment could also increase 9%.”
According to an article written by Alan McIntyre in Forbes,
“AI is also helping to reduce risk and lower compliance costs. AI and natural language processing can be used to automatically produce anti-money laundering and know your customer (KYC) reports, and to gather data for regulatory stress tests. Using AI for such tasks can cut bank compliance costs by up to 30%, according to the International Banker, saving billions. This automation also spares the thousands of risk and compliance staff who have sat in large warehouses since the financial crisis the tedium of repetitive, mundane tasks and frees up their time for more rewarding work.”
For more information on how AI is affecting the banking and finance, you can read Alan’s full article here.
More big news in the compliance world as regulators are working intently to push out a CRA revamp proposal within weeks. This move to reform is coming after previous attempts at modernizing the CRA only led to a more complex and outdated enforcement process.
According to an article by Rachel Witkowski, appearing in American Banker, “Specifically, regulators are considering new metrics for CRA's four grading categories — which are now "outstanding," "satisfactory," "needs to improve" and "substantial noncompliance" — as well as whether to expand the CRA assessment area and the types of loans that count toward a bank’s CRA score, these sources said.”
It’s important to note that many are hopeful that the new CRA policy is more “in line with business practices and community needs.” Especially considering the fact that the last major reforms took place in 1995.
As the EVP for Financial Institutions Policy and Regulatory Affairs at the American Bankers Association, Way Abernathy said, “We need a structured [CRA] system that is going to evolve as the customer needs have evolved.” Wayne went on to discuss how enforcement of CRA focuses too much on mortgage lending for “low-to-moderate income borrowers, rather than all lending in the broader community.”
Interestingly, it seems as though calls for reform to the CRA are coming from all sides. Gene Ludwig, the Chief Executive of Promontory Financial Group and a former Comptroller of the Currency stated, “Like any set of rules, it is wise to study from time to time how to make them more effective and relevant on the one hand and less burdensome on the other. It’s also important that we consider ways to expand the CRA approach to nonbanking organizations, particularly nonbank financials.”
As you can already tell, this is an issue that is sure to generate much discussion and is set to dominate the news cycle in the coming weeks.
TRUPOINT Viewpoint: As you can tell, a lot has been happening in the month of March! In this challenging and fast paced industry, we know all too well how difficult it is to stay on top of the news cycle while dealing with the many rigors of the job. If you feel like we've something that you think we should share, please don't hesitate to comment below. If you want to make sure that your institution is on track for compliance success in 2018, download our free HMDA Compliance Checklist and get ahead of the curve!
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