Last week, the Consumer Financial Protection Bureau (CFPB) released a rather dry 150-page amendment proposal for Regulation C of the Home Mortgage Disclosure Act (HMDA).
However, buried within the proposal were some interesting clues surrounding a new geocoding tool that the CFPB is providing to help lenders identify a property’s census tract.
What’s a census tract?
Census tracts are statistical subdivisions within a county that are established (and shifted before each decennial, or “10-year,” census) by the U.S. Census Bureau to “provide a stable set of geographic units for the presentation of statistical data.”
A census tract usually contains a population of between 1,200 and 8,000 people; the Census Bureau says that the “optimum size” is 4,000. The bureau adds that the sizes of census tracts can vary depending on the density of population, and that boundaries “generally follow visible and identifiable features.”
In general, the bureau leaves census tract boundaries alone, but it does assess them every 10 years and will occasionally split a tract or merge two or more because of population shifts.
Fair enough; but what do they have to do with buying or selling a home?
This comes back to the HMDA itself, and the clue is in the name: The HMDA requires lenders to track certain data metrics and make them publicly available, and Regulation C is the part of the law that asks lenders to share which communities are getting residential mortgages (and which are not).
Those communities are determined and reported using census tracts. This helps the CFPB identify potentially discriminatory lending practices and distribute public-sector investment to where it’s needed in order to attract more private investors, among other uses.
What will the tool do?
According to the document, financial institutions can use the geocoding tool on the CFPB’s website “to identify the census tract in which a property is located.”
Also added to the rule change proposal: If a lender puts in the right address but receives an incorrect census tract identifier, that lender isn’t violating Regulation C.
This is important because, the CFPB said in its proposal, “geocoding is often regarded as a pain point for many financial institutions for HMDA reporting,” and that it’s possible that the tool could benefit rural consumers “because it is commonly believed that properties located in rural areas face more geocoding challenges and this proposal alleviates some of that burden.”
The CFPB added that the proposal would likely reduce the costs for lenders with these tasks:
- Completion of geocoding data
- Standard annual edit and internal check
- Internal audit
- External audit
- Exam preparation and exam assistance on issues related to geocoding
What else is in the rule change proposal?
Most of the proposal, however, has nothing to do with census tracts or geocoding.
Its main purpose, as stated by the CFPB, is to “establish transition rules for two data points.” Those data points are:
- Loan purpose
- Unique identifier for the loan originator
The CFPB’s proposed transition rules would make it acceptable for lenders to select or report “not applicable” when reporting data on purchased loans that were originated before the regulatory requirements necessitating those data points took effect — so it’s relaxing regulations in this area for financial institutions.
“The proposal also would make additional amendments to clarify certain key terms, such as temporary financing and automated underwriting system, and create a new reporting exception for certain transactions associated with New York State consolidation, extension and modification agreements,” said the CFPB in the rule proposal.
Anyone with comments to make on the regulations can visit regulations.gov or email FederalRegisterComments@cfpb.gov; include “CFPB-2017-0010” or “RIN 3170- AA64” in the email subject line.
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