The signs were all there – I’m walking my dog in the dark, mowing my leaves rather than my lawn, and firing up the furnace – but it didn’t hit me until I walked into the store last weekend. There in aisle three, right behind the Halloween costumes are the Holiday decorations! Where has the year gone?
Well, for most of us, the year was spent reading the CFPB’s new rules, amendments to the new rules, amendments to the amendments of the new rules, and technical corrections to the rules and amendments! And, while it’s scary that there are only 62 shopping days until Christmas, it’s downright frightening that there are only 53 working days until the effective date of all those rules and amendments – January 10, 2014!
But what’s even more terrifying than that – there are only 85 working days until your HMDA is due to be filed! So why am I thinking about HMDA now? Well, given the significance of the changes required to implement the CFPB’s new rules, amendments and technical clarifications, come January 10, compliance officers are going to be buried in testing for compliance with the new regulations! So, effectively you have just 53 working days to get your HMDA right!
While 2013 has brought significantly fewer HMDA-related civil money penalties than prior years, the CFPB’s HMDA bulletin, released in October, reiterates the regulatory focus on getting HMDA right. CFPB Bulletin 2013-11 sets forth the Bureau’s expectation that covered entities maintain effective HMDA compliance management systems, defines the error tolerance that the CFPB will enforce beginning in 2014, and discusses the factors the CFPB will evaluate when considering potential enforcement action.
Clearly, prudence dictates an evaluation of your institution’s HMDA compliance management system against the Bureau’s stated program expectations. But, given the time-crunch, I recommend focusing on the expected “comprehensive and regular internal, pre-submission HMDA audits, to test and evaluate data accuracy, and that include a reasonable amount of transactional analysis, written reports detailing findings, and recommendations for corrective action.”
Those of you who perform quarterly HMDA data accuracy verifications are probably in pretty good shape. But those of you who schedule data verifications just prior to submission may want to complete the testing on the year-to-date data now rather than waiting. In either case, some HMDA testing will have to be done in 2014, preferably prior to January 10!
You’ll want to be sure that your data verification covers at least the “key fields,” but given that resubmission can be required for errors in non-key fields “if, in the examiner’s judgment, these errors prevent an accurate analysis of the institution’s lending” you may want to validate all fields. Here are a few HMDA review tips to consider:
- Make sure ALL reportable applications are included. Reconcile the LAR entries you have back to new loan reports, denial or second review reports, and/or reports from your application processing system. Be sure all lending areas are included. And, if you implemented a new mortgage loan product make sure those applications are hitting the LAR.
- Be sure to validate the LAR data back to the source document in the application file, even if you use a HMDA data input form.
- Include system-filled fields in your validation: remember if the system is doing it wrong, it will be wrong 100% of the time.
- In addition to the sampling you do, perform an “eye ball” test of the LAR. Scan the LAR for data fields with values that don’t make sense. For example:
- If you implemented a pre-approval program on July 1, you shouldn’t see entries prior to that date coded as pre-approval not requested.
- If you don’t accept manufactured homes as collateral, none of the LAR entries should be coded as manufactured loans.
- If you don’t sell loans, you shouldn’t see applications with a purchaser type other than 0.
- An application for a multi-family dwelling with a reported income.
- An action taken date prior to the application taken date.
- Expand your testing to include a higher proportion of those files with problematic codes – such as approved not accepted, withdrawn and closed for incompleteness – to confirm they are accurately coded.
- If accuracy of denial reasons was noted in your prior Regulation B review, you may want to validate a larger sample of the denial reasons on the LAR back to the underwriting file.
Clearly your 2013 HMDA data responsibilities can’t all be completed by year end, but by doing the lion’s share now, you’ll have more time in early 2014 to focus on verifying compliance with the new regulations.
Posted by Elva M. Coffey-Sears