HMDA implementation: Early steps to ensure future success

By Heather Buss

While it may seem far off, if your organization hasn’t already started to think about HMDA implementation, you are likely behind. Effective January 1, 2018, the final amended rule of the Home Mortgage Disclosure Act (HMDA) issued by the Consumer Financial Protection Bureau (CFPB) in 2015  impacts reporting requirements for financial institutions.

Increase in institutions covered and data needed

Not only does the amended rule increase the requirements over the organizations that must file, the amount of data has substantially doubled. The CFPB predicts an increase of 40% of non-depository institutions will now be covered under the rule. The data points required to report include new and modified fields. Along with the increased data points, the file format is changing and paper submissions will no longer be accepted. These two changes go into effect as of January 1, 2017.

Need for highly accurate data

It is important to report accurate data given the CFPB’s history in pursuing companies who do not comply. There were two cases in late 2013 requiring the organizations to pay civil money penalties for errors identified in their data. While there is a safe harbor for organizations that resubmit their data if they identify an issue, an organization should understand what this data says about their lending environment.

Broad peer comparisons

Origination costs will be analyzed more closely to try and identify fair lending violations. Companies will be compared to their peers, but the big question from the industry is, who is considered my peer? The answer appears to be this, expect a broad interpretation. While an organization may be quick to dismiss another company as a peer because of size or product offerings, the data is easily analyzed. From the types of products offered and used to locations, census tracts, metropolitan statistical areas (MSA), it will be reviewed.

The new information will help regulators to focus their examinations and the start of any examination begins with the looking at a company’s HMDA data.

Recommendations

There are steps your organization can take now to help you prepare:

  1. Read the original rule.
    It is important to understand the fundamentals of the rule to help understand how the amendment impacts the future state. Comparing the original rule alongside the amended rule will certainly help to identify more clearly what is changing and new things to anticipate.
  2. Understand your current technology.
    Can your systems support both the current and new data points? Do you have a single system to obtain the data? How automated is your reporting process? Thinking about the answers to these questions will help to determine whether your technology is ready for the implementation.
  3. Review your data now.
    Understand the impact the modified data points will have on your organization and whether you can change the use of current data points for HMDA or need to create a new data field within your loan operation system.
  4. Understand the resources available.
    The CFPB has a multitude of information on their website to help companies understand the implementation and the technology required. Review the available resources for information to assist your organization in understanding the changes.
  5. Think about how the implementation impacts your entire organization.
    Additional training may be required and policy and procedures will likely need to be updated. While it may seem limited to only data reporting and technology resources, the changes will impact across an organization from loan officers to operations as the requirement extends to purchased loans.
  6. Use the data to your advantage.
    You may be able to find opportunity within the data in terms of products, markets, and pricing.

With this increased need for accurate and complete data, the changes to organization’s systems, process, and policies may be substantial. Financial organizations that now fall under the HMDA rule should begin evaluation of the impact to their internal operations.

For more information on HDMA implementation, or to learn how Baker Tilly’s financial services specialists can help, contact our team.