It's not the heat, it's the HMDA

RMA Journal, The, Sept, 2003 by Leonard Ryan

The new Home Mortgage Disclosure Act (HMDA) changes that become effective January 1, 2004 are sure to cause some anxiety. However, the amount of anxiety you have may depend on how well you train your frontline troops. Changes range from minor definition additions to major reporting differences, and the keys to surviving the transition are education and effective planning.

What's Changed?

Almost everything has changed with HMDA reporting for 2004. About a third of the changes are new fields. With the new HMDA you have new reporting for:

* Preapprovals.

* HOEPA status.

* Rate spread.

* Ethnicity.

* Lien status.

Specific fields are required to determine the values of other fields. To calculate rate spread, you need to know:

* APR.

* Rate lock date.

* The appropriate Treasury security index as of the 15th of the previous month.

* Loan term (10, 15, 30 years).

* Lien position.

In addition, many fields have changed their codes. New codes will now be required for:

* Property type (manufactured housing).

* Race (completely changed).

* Race/sex codes in addressing co-applicants.

* Purchaser types (adding credit unions, private investors).

Finally, a series of transition rules have been put into effect that need to be used for loan requests opened in 2003 but not closing until 2004. A usefuL matrix for these new rules can be found at www.questsoft.com/webupdate/HMDATransitionRulesv2.pdf

Why is this different from implementing any other regulation? The problem with the revised HMDA is that it all happens on a specific date and time. Essentially, we have a "Cinderella Syndrome," where all the forms change at midnight on December 31, 2003. It really isn't much different from the Y2K concerns of a few years ago.

This lack of an implementation period and the fact that you will be coming right out of the holiday season make these changes some of the most challenging for you, your software vendors, and the IT staff.

Why are the changes affecting so many areas of loan operations? Things are very different now from when HMDA was last changed. The biggest challenge is the extent to which software products are integrated among vendors. When you had a form to put in the typewriter, it was easier to just take out the old forms and put in new forms. But because vendors have automated the process--to make it easy for you and to integrate with multiple vendors--any change to data formats affects more areas than it used to.

How best to prepare? Here are two overarching thoughts:

1. Be patient with your software vendors until October, then start turning up the heat if you don't have solid answers by November 1. They all know about the changes and are working hard to program them, while waiting for other vendors to do their jobs as well. Therefore, you should he receiving new programs and solid communication from your vendors by October.

2. Start training early. Because of the holidays, plan on both preholiday and postholiday implementation training. If you have a lot of branches in your organization, prepare a plan for using the new forms for origination and then set up automatic e-mails to remind everyone of the changes during the last week of December. If you haven't seen the new Universal Residential Loan Application (FNMA Form 1003) or want simplified information, visit www.hmda.net. For more detailed information on the HMDA changes, edit and error codes, or the official guidelines, go to www.ffiec.gov.

Contact Ryan by e-mail at len@questsoft.com for any questions about the changes being implemented to the 2004 HMDA regulations.

[c] 2003 by RMA. Leonard Ryan is founder and president of QuestSoft, a provider of Home Mortgage Disclosure Act (HMDA) and Community Reinvestment Act (CRA) compliance software and services.