HMDA – Confidence that you are “Getting it Right” in 2020

Embracing HMDA: As Tolerance for Error Wanes, Banks Expected to Strengthen Processes

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Having to perform a “regulator mandated” Home Mortgage Disclosure Act (HMDA) resubmission is hard work. And, if you don’t put the work in before you submit your Loan Application Register (LAR), you may get the opportunity to do just that anyways.

As we begin the New Year and wrap up 2019, we have lots of clean-up duties. Taxes, Reports of Condition, Budgets, etc.  We want each to be as correct as possible. As bankers and business professionals, our jobs are to safely and intentionally grow our profits, our people, our customers, and our communities. We do not want to be distracted by something we should have done correctly the first time. Unfortunately, we’ve seen banks fall victim to their own casual processes.

We, as well as bank regulators, knew the LAR and the related data collection requirements had become more tedious. The Consumer Financial Protection Bureau (CFPB) issued a public statement in December 2017 announcing that the Bureau did not intend to require data resubmission unless data errors were material or assess penalties with respect to errors for data collected in 2018 and reported in 2019.

This year it’s for real. That same level of tolerance no longer applies to data collected in 2019 for submission and due March 2, 2020.

Checklist for HMDA Integrity Success

    • Identification of HMDA loans – Your training systems are key in this HMDA process.

      • Can your lending staff identify all the loan types – consumer and commercial – applicable to HMDA?
      • Do you have a second set of eyes looking at all loans secured by a lien on a dwelling to ask the other questions that make a loan HMDA reportable?
      • Have you provided training to lenders, loan assistants, and processors to identify HMDA loans?

Making the call early in the loan process makes other steps easier. Being aware a loan is HMDA reportable allows lenders and lending staff to gather all the requisite information right from the start – particularly on commercial loans.

    • Consistency of Initial Data Collection – How you first gather the data matters. Examine the process for initially accumulating HMDA data.

      • Does the data come from the initial application and / or subsequent processes?
      • Is there a consistent process across banking locations and business lines? For example, is income calculated and entered consistently?
      • Some consumer real estate applications and loan software provide a direct feed to the software. If yours doesn’t, do you have tools to insure the calculation is done consistently and documentation is retained to support the calculations? These processes should all be managed at the “business line” level.
    • Verification of LAR Data – Set procedures to verify data as it is gathered and entered into the bank’s LAR.

      • Are there periodic checks or testing completed by the bank’s internal audit department or similar risk management personnel to insure expected processes are followed and data is entered consistently with regulatory guidance?
      • Is the bank following its own processes at all locations?
      • Do the documents and calculations support the entries in the LAR? If not, can a pattern be discerned regarding weak points and inconsistencies?
    • Independent (External) Testing of LAR Entries – Leave room for no surprises from banking regulators by testing external channels.

      • Who backstops your data gathering, input, and validation? External testing of the HMDA LAR and related processes will allow you as banking management to make adjustments as errors are detected.

Goals can only be achieved when you have and apply systems and processes to make those goals real.

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