The annual release of public HMDA data always sparks discussion and delivers insight. This year is no different. Here's are five steps to take, now that the 2015 public HMDA data is live.
Every year, the release of the public HMDA (Home Mortgage Disclosure Act) data attracts the industry's attention. It also attracts the attention of compliance officers nationwide, because this public HMDA data often reignites the Fair Lending fire.
This year's public HMDA LAR data was released yesterday afternoon. While we're still just beginning our analysis, we do know that this year, there are 14.4M records, which is up from last year's 11.9M. The 2013 HMDA LAR had 17M records, and 2012 had 18.7M.
When this data is released, the best compliance officers respond quickly. Why? Because it offers a unique opportunity to compare your data to peers', competitors', benchmarks and more. It also is the data the regulators will use when evaluating your Fair Lending performance, so it will provide valuable insight into your risk profile.
Here are five steps you can take to respond to the public HMDA data release, and prepare for additional Fair Lending scrutiny from the regulators:
1. Analyze Your HMDA Data for Fair Lending Compliance Risk
After the public HMDA data has been released, best practice organizations analyze their data, because they know it's what the regulators will use in the coming year's exams.
Review your data for disparities that may indicate discrimination. You're assessing how prohibited basis groups compare to control groups for differences in application rates, withdrawal rates, denial rates, pricing, underwriting, and more.
Every institution has disparities. Remember: disparity does not always mean discrimination, but analyzing your data is the only way to tell the difference!
When you do find disparities, you'll need to be prepared to explain them. Are these disparities evidence of discrimination? Are they even statistically significant? The regulators will ask questions about your disparities. Analyze your data so that you can answer them!
2. Compare Your HMDA Data to Updated Peer and Competitor Data
New public HMDA data means new benchmarks! Benchmarks, or peer averages, are a great metric to consider. By comparing your data to national, regional and local benchmarks, you can see how you compare to other institutions.
When the regulators evaluate your Fair Lending performance, they will consider how you compare to your peers. (For example, if your application disparity is 2x, but your competitors' disparity is 4x, you're outperforming your peers!)
3. Evaluate Your Redlining Risk Using HMDA Data
Redlining has been a regulatory priority for the last 12-18 months. In that time, regulators have levied more than $40M in Redlining-related fines, settlements and enforcement actions. Redlining is unique because it is related to both Fair Lending and CRA - and Redlining risk can unravel all of your hard work in both of those areas.
When you do analyze your HMDA data for Fair Lending risk, make sure you also review it for Redlining risk. You'll be looking for indications that high-minority and low-to-moderate income areas are being excluded or treated differently.
[Free White Paper: How Redlining Risk Can Unravel Your Compliance Program]
4. Consider How Policies and Procedures May Contribute to Fair Lending Risks
When Fair Lending (and Redlining) risks are identified, your next step is to identify what is causing them and ways you can improve. Consider your policies and procedures, and see if they may be causing the disparities or elevating your risk.
Best practices recommend that lenders conduct a comprehensive Fair Lending risk assessment annually, or sooner if your risk profile changes. A Fair Lending risk assessment will review your policies and procedures, as well as many other aspects of your compliance program, to determine your risk profile and what factors are contributing to it.
5. Develop a Strategic Plan for Next Year's Growth Goals that Considers Compliance
Financial institutions need to consider compliance as they develop their strategic growth plans. Whether you're looking to open new branches, or close or relocate others, M&A activity, compliance should be a primary consideration. In fact, the right location with the right services and right configuration will not only improve your business, it will improve your compliance.
Particularly if you've identified Fair Lending, Redlining or CRA risks in your data, you need to pay extra attention to the potential compliance impact of adding, moving or closing any branches or ATMs.
TRUPOINT Viewpoint: The annual release of the public HMDA data creates a flurry of activity here in the office. We get to finally dig in and try to uncover new trends in the data, and more importantly, we get to turn up the heat on analyzing customer data.
We love helping to identify risks, explain disparities and track our customers' progress in mitigating existing Fair Lending risk. If your experience analyzing your Fair Lending data is anything less than fantastic, we'd love to talk and see how we can help.
In the meantime, check out this free Analytics Info Kit + Report Preview. In it, you'll see how we analyze our clients' data for Fair Lending compliance, sample reports and dashboards, and so much more. Just click below to get it!
- Free Analytics Sample Report Preview
- See Why the Public HMDA Data Impacts Your Fair Lending Compliance
- 4 Basic Fair Lending & HMDA Questions You Need to Ask
- 5 Basics of Strong Fair Lending Compliance Management
- Don't Let Your HMDA Data Fade Into the Rearview!