CFPB Proposes Important Changes to HMDA Regulation Applied to NY Mortgage Refinances

May 4, 2017 at 9:34 am Leave a comment

Proposed “technical” corrections to the impending new HMDA regulations include provisions of particular importance to those New York mortgage lenders.

Grab a cup of coffee, but come back to read the rest of the blog. This deals with the type of operational nuance which makes an everyday compliance person or two absolutely essential at your credit union, but puts normal people to sleep.

Here it goes, §255 of New York’s Tax Law deals specifically with the treatment of supplemental mortgages, commonly referred to as refinance, or Consolidation Extension and Modification Agreement(CEMA). Considering that New York has some of the highest recording taxes in the country this provision saves homeowners thousands of dollars by avoiding the need to record a new mortgage anytime mortgage terms are changed, but the underlying mortgage note is not paid off.

So what does this have to do with HMDA? HMDA requires lending institutions that meet certain thresholds to report mortgage loan data. Regulations promulgated by the CFPB which take effect in 2018 greatly expands the amount of information required to be reported. Most importantly, for purposes of this blog, the CFPB decided that CEMA loans should be treated as new loans for purposes of HMDA.

Here is where it gets tricky In New York State: The following scenario is quite common. A divorced spouse takes over the remainder of a mortgage, which is refinanced. She also enters into a separate transaction, which results in additional monies being borrowed. The two separate transactions are ultimately consolidated into a single mortgage loan but because they are separate transactions only the loan involving a new mortgage note is recorded. This is done so that the borrowers only have to pay a recording tax based on the newly lent funds. Since CEMA’s will now have to be reported under HMDA, does this mean that NYS lenders have to report both the CEMA and the newly created mortgage as separate transactions?

The proposed amendments contain an important clarification that will alleviate some of the headaches associated with this requirement. The CFPB clarifies that HMDA lenders must only report the “single consolidated loan that results after both sequential transactions are completed” it explains that in NY a “CEMA is the functional equivalent of a refinancing achieved by other means purely for tax reasons.”

You can find this language in the preamble to the proposed amendment on pages 19150-19151. I would suggest flagging this for your mortgage file. At least that is what I am going to do.

Remember that most of the key reporting requirements take effect in January 2018. An institution however is subject to the regulation based on its 2017 mortgage volume.

Entry filed under: General.

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Authored By:

Henry Meier, Esq., Senior Vice President, General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association. In addition, although Henry strives to give his readers useful and accurate information on a broad range of subjects, many of which involve legal disputes, his views are not a substitute for legal advise from retained counsel.

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