Kimberly Boatwright of Ncontracts: 4 Key Stages of Annual HMDA Data Lifecycle
Kimberly Boatwright is VP and Solutions Architect for Ncontracts, Brentwood, Tenn., a provider of integrated risk management solutions for the financial services industry. For more information, visit www.Ncontracts.com.
During this time of the year, one area of compliance stands out as a focal point: HMDA.
HMDA, or the Home Mortgage Disclosure Act, is one of the key consumer compliance regulations for American financial institutions.
In recent years, this key legislation has undergone immense changes, from what HMDA data is collected to how you submit the final HMDA LAR. Because of this, it can be a real challenge for financial institutions to stay up-to-date and on schedule.
To stay on track, it is critical to understand the annual lifecycle of HMDA data, starting with collection.
Stage 1: HMDA Data Collection and Clean-up
The first stage of the HMDA data’s lifecycle is both the first phase of the new year’s HMDA data and the last phase of the prior year’s data. In January, financial institutions began collecting the new year’s HMDA data. Lenders are reviewing the prior years’ data for errors to prepare it for submission, called HMDA transmittal, for the March 1 deadline.
Most larger institutions will review the data and prepare it for submission on an ongoing quarterly basis to make it manageable, but this isn’t always feasible for smaller institutions.
Furthermore, lending compliance professionals are often working new responsibilities and strategies, enhancing risk management, coordinating training, preparing for the year ahead, and facilitating HMDA data collection and preparation. This can be exhaustive, so lenders must prepare accordingly and ask for help if needed.
Stage 2: HMDA Data Submission
March 1 is the HMDA LAR submission deadline. This is a critical date in the lifecycle of HMDA data and when previous year’s data is submitted to the federal government for review. The data is then used to evaluate institution-specific and industry-wide disparities, prioritize institutions for Fair Lending exams, identify trends in the market, and prepare it for public release.
Financial institutions’ data needs to be perfectly clean and ready for submission by March 1 to submit it to the CFPB online platform. If the file doesn’t pass the built-in edit checks of the CFPB’s platform, lenders won’t be allowed to submit and could face a late submission.
Stage 3: HMDA Data Analysis
The best time to analyze HMDA data is following the final HMDA LAR submission. This is the same exact data regulators are seeing.
Regulators will review that data for disparities, both at an institution and industry level. They will review the HMDA LAR to prioritize institutions for exams. Naturally, institutions with higher disparities will receive more attention. Regulators will also prepare the HMDA data for public release..
Additionally, community groups and journalists have also expressed interest in the public HMDA data, using it in articles about Redlining and Fair Lending issues impacting their communities and readers.
A thorough HMDA analysis allows financial institutions to clearly tell their story to examiners, community groups, journalists and potential customers. And it is key to remember that disparities do not always mean discrimination, however, data analysis is the only way to know.
Stage 4: Ongoing Monitoring & Mitigation
After analyzing the HMDA data, lenders must identify areas of risk exposure. HMDA compliance really becomes about Fair Lending monitoring, mitigation and maintenance. It’s important to ensure that the HMDA program is working as expected and to take steps to control and mitigate risk as it evolves. This means ongoing HMDA analysis, risk assessments, training, policy and procedure improvements, solutions upgrades and data maintenance.
Financial institutions should also conduct a Fair Lending risk assessment annually. Many institutions will rely on insights from the HMDA data to guide the direction of any reviews and risk assessments and to supplement the risk assessment’s findings. Lenders must also make sure to analyze their data compared to peers and benchmarks to ensure a solid understanding of how their performance is compared to others in their area.
Finally, remember that Fair Lending and CRA compliance are intertwined. As institutions review and analyze HMDA and non-HMDA data, they are also reviewing CRA data, for Redlining and other consumer compliance risks.
(Views expressed in this article do not necessarily reflect policy of the Mortgage Bankers Association, nor do they connote an MBA endorsement of a specific company, product or service. MBA NewsLink welcomes your submissions. Inquiries can be sent to Mike Sorohan, editor, at msorohan@mba.org; or Michael Tucker, editorial manager, at mtucker@mba.org.)
