Alesha Briley, CMCP, and Leanne Minghini of Ncontracts: What Story is Your HMDA Data Telling?
Alesha Briley, CMCP, is a Regulatory Compliance Expert with a focus on Lending Compliance for the Content Team with Ncontracts, Brentwood, Tenn., and holds a designation from the Mortgage Bankers Association as a Certified Mortgage Compliance Professional with 10 years’ experience in mortgage lending and compliance. Leanne Minghini, CRCM and FLE, is a Senior Fair Lending Analyst with Ncontracts and holds a designation from the American Bankers Association as a Certified Regulatory Compliance Manager and Fair Lending Expert from Tuscan Club University with 25+ years’ experience in mortgage lending and compliance.
Telling your mortgage company’s Home Mortgage Disclosure Act story is essential for fair lending compliance. It begins with data collection and ends with data analysis. An effective HMDA data process involves eight steps.
Collect and record HMDA data. Collecting and reporting HMDA data is crucial. Neglecting regular scrubbing and analysis adds unnecessary risk, leading to missed fair lending issues and insufficient time for corrections. Bad data is often the result of a problem within your compliance management system and are a top concern for examiners.
Keep track of how your mortgage company aids borrowers. Consumer Financial Protection Bureau examiners look at lender’s good-faith efforts to help borrowers. Tracking your programs and the number of customers they help so that you can explain why something that looks like disparate treatment isn’t.
Review and update lending policies. Document changes to written policies – both new programs and updates to existing ones – and then train employees on the changes. Employees need access to these policies and job-specific training. The board, management or your lending committee should approve any significant changes.
Review lending activity. Analyze lending activities at every branch, loan officer, and channel (e.g., mortgage, small business, and retail) to assess fair lending compliance. Although you can utilize someone with math and statistics background to effectively analyze your lending data, using a software solution can be more efficient and reliable. Even using both an analytic expert at your institution and a software solution can provide an even better, more in-depth, review.
Policy exceptions and complaints. Underwriting policy standards should be clearly defined, and procedures for exceptions should be documented. Policy language should not leave room for subjectivity or discretion. This includes exceptions and fee waivers.
Underwriting policy standards should have set minimums for:
• Debt-to-Income (DTI)
• Loan-to-Values (LTV)
• Type of collateral
Flexibility can help loan officers meet consumer needs, but it can also inadvertently hurt your fair lending efforts. Pair exceptions with a monitoring and tracking process that looks at lending both as a whole and by market area. Your policy should outline actively managed and monitored compliance controls (i.e., policies, procedures, monitoring, reporting, management participation, etc.) for exceptions and complaints to ensure they don’t lead to violations.
Review important data points. Don’t wait for examiners to find disparities in your HMDA data. Look for patterns and potential risk areas, including fair lending issues and CRA (Community Reinvestment Act) compliance. Do a thorough analysis, such as regression testing, to identify weaknesses in your compliance
management system and take action to mitigate risk. Examiners want to see that you are proactively analyzing your data and addressing any issues.
Next steps: Comparing peer data to your HMDA data. Understand your own data (and where you have the most applications) before looking at peer data. From branch locations and market to reasonably expected market areas, you need to review your analysis areas. Then you can analyze what your peers in those areas engaged in similar business are doing.
Which institutions stand, both among peers and nationally? When comparing performance, don’t forget to consider the context. Outperforming other institutions doesn’t mean you doesn’t mean your HMDA data tells a great story. It’s not enough to be the best in an underperforming group. Your efforts need to stand on their own.
It’s also important to remember that examiners don’t just want to hear “we don’t have a branch in that area” as an explanation for why your institution isn’t lending in majority-minority and low-income neighborhoods, as we have seen in recent enforcement actions for redlining.
Board and management reporting & HMDA data. The board of directors looks for executive summaries that focus on high-level HMDA data. Easy-to-digest tables and charts that focus on key points, including findings and remediation, are the way to go. Go beyond the trends and challenges at your mortgage company, if relevant, to give context. Past audit reports can help ensure nothing is overlooked and help avoid repeat findings.
When reporting to a committee, you can go into more details since you’re dealing with a group that both needs and understands more in-depth HMDA knowledge because they are responsible for helping manage lending compliance risk. Senior management requires the most detailed reporting.
(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.)
