Exempt small credit unions and revert to the 500 mortgages-per-year threshold (thresholds amended by Congress via EGRRCPA; CFPB implements; this would relieve burdens on small credit unions under $500 million, as emphasized in the 2018 EGRRCPA, which exempted institutions with under 500 originations to reduce reporting for low-volume lenders).
CEO Feedback Summary (Doug Wadsworth): Despite my very small size, I am now required to do perform HMDA tracking and reporting every year, this is an enormous, complicated and expensive time-waster. The minimum required number of mortgages or home equity loans per year used to be 500, then it dropped to 100, then just last year, to 25. We are tiny, we book all our mortgage or home equity loans in-house (we don’t do anything with the secondary market), yet, we have a HMDA reporting burden… and most of it requires manual entry (as we can’t afford the fancy automated software tracking tools). Why did the number of mortgages necessitating reporting drop from 500, down to 25 in the past few years? Are they *trying* to put tiny credit unions out of business?
Summary: The Home Mortgage Disclosure Act (HMDA) reporting threshold requirements have been radically reduced in the past few years, and is now so low that even tiny credit unions are required to comply with this onerous reporting burden, even if they only finance a couple dozen tiny home equity loans in a year (rarely even an actual mortgage). Not only is the gathering and reporting of this data excessively burdensome and costly to small credit unions, but the tiny amount of data being gathered is insignificant and immaterial to the collecting agencies. Severely burdensome and costly reporting requirements like this are destroying the long-term viability of small credit unions.
Proposal: I request the HMDA Reporting threshold for Loan-Volume be increased back to the levels that existed prior to 2021, namely: Only if the institution originated more than 500 closed-end mortgage loans in each of the two preceding calendar years.
Background: I recognize that collecting large amounts of housing data from large institutions is valuable for detecting economic trends and illegal discrimination. However, the thresholds for reporting has recently become so low, it is suffocating small credit unions without providing significant amounts of data to be of any material value to the agencies.
The determination of whether an federally regulated institution is subject to these reporting rules is subject to 4 factors: The asset size (about $50M), whether it is located inside an MSA (Metropolitan Statistical Area), whether they have done a single home purchase loan in the previous year (yes, just 1), and the Loan-Volume threshold (in each of the preceding two years).
However, this Loan-Volume threshold isn’t just based on the number of actual home ‘first” mortgages, rather it includes any tiny home equity loan secured by a deed of trust (even tiny $5,000 home improvement equity loans).
Prior to 2021, the Loan-Volume threshold for these “mortgages” was 500, then a couple years later it dropped to 200, then down 100, and finally in 2023 it dropped to only 25 loans! If a tiny credit union does 25 tiny home equity loans and a single home loan purchase per year, they are now subject to HMDA reporting! Such small numbers of tiny loans, by tiny institutions… this data cannot provide any significant or material value to the agencies collecting it, while suffocating small credit unions.
Reporting Burden: The HMDA requirements are the most burdensome and costly reporting burden confronting our entire credit union, likely even higher than the Bank Secrecy Act itself. First, it requires a special LEI identifying code purchased from Bloomberg Financial (which is only needed for HMDA reporting), which needs to be renewed at an additional expense every year. In addition there is a complicated Login.Gov FFIEC reporting portal that requires a complicated registration process to maintain HMDA reporting (of course, being built by the government, it is non-intuitive, redundant and slow), which takes several days to arrange, as well. Then, the process of reporting requires many hours of data testing and formatting with their special LAR File tool, which we have to download, and follow a complicated process which I have to “re-learn” every year (since we only use it once per year). Prior to the actual reporting we have to collect mass amounts of data on *EVERY SINGLE* person who applies for any type of home equity loan (2nd), or mortgage refinance, or home purchase. Pages of data that collected and then input manually by an employee, as well as manually keying in the exact address on a special website to search for the census tract, which changes every year, to input into a system as well. We have to guess their gender and nationality, and race, in multiple ways, with dozens of complicated definitions with tricky interactions required, which then generates a 100-page error report from our data system, from which nearly every application needs multiple MANUALLY entered data corrections, until our data is even ready for the “LAR File formatting tool.”
If I had to estimate, I would say that despite our tiny credit union size, small number of “eligible” loans, and a mortgage department staff of only a SINGLE employee, HMDA probably costs us 100 hours per year.
Case Study: My credit union is only about $73M in Assets, and we operate out of a single small office building, with only 14 employees (including myself). We cannot afford expensive special mortgage software websites or data filtering systems for our small volume and size, we cannot even reasonably afford to abide by secondary market standards, so we book everything “in-house,” with manual entry data entry processes by our tiny mortgage department. Regardless, even if we only originated a *single* mortgage home purchase in the previous year and only a couple dozen small $5,000 HVAC home equity loans in each of the preceding two years… we are subject to HMDA Reporting. We would then be required to spend a hundred hours per year trying to comply with this burdensome reporting requirement, instead of using our small number of employees to actually serve our members, and stay profitable and healthy.
Partial Exemption Note: It might be argued that since our loan-volume threshold is still under 500, we are at least eligible for the “partial exemption” of data reporting, which slightly reduces the number of data points requiring collection. However… the data points still required represent the bulk of the reporting anyway, so we are only “exempt” from 10% of the burden, which is a nearly insignificant exemption.
The Net Effect: Small credit unions provide a valuable financial service to their membership, often offering more flexible loan solutions than large institutions, to people who would not qualify at large institutions due to poor credit or unique situations. Small credit unions also typically offer “in-house” financing (mortgages not sold on the secondary market), which many people value, and which provides competition in the marketplace (helping everyone).
Small credit unions faced with HMDA reporting will either be discouraged from entering the home or mortgage marketplace altogether (to avoid the costly reporting burden), or will comply with the reporting burden and then struggle to remain profitable.
Either result leads to fewer options for our members, as well as the eventual irrelevance or demise of small credit unions, as we are merged into larger organizations… leaving those people of modest means, underserved again.
Please, increase the Loan-Volume Threshold of small credit unions back to 500, where it was prior to 2021, so that small credit unions like mine can afford to compete in the marketplace, and so we can provide valuable and flexible home loan options to our members.
