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:
1. 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.
2. 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.
3. Include system-filled fields in your validation:
remember if the system is doing it wrong, it will be wrong 100% of the time.
4. 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:
a. 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.
b. If you don’t accept manufactured homes as
collateral, none of the LAR entries should be coded as manufactured loans.
c. If you don’t sell loans, you shouldn’t see
applications with a purchaser type other than 0.
d.
An application for a multi-family dwelling with
a reported income.
e.
An action taken date prior to the application
taken date.
f. ETCETERA
5. 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.
6. 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.
