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Preparing for 2014 HMDA Submission: 5 Compliance Areas to Explore

4 min read
Feb 6, 2015

The annual HMDA reporting deadline of March 1st occurs on Sunday in 2015; therefore, the deadline for submitting the calendar year 2014 HMDA data file will be the next business day, March 2, 2015. As you prepare to submit your HMDA data, do you know what your data says about you? Do you know how you compare to your peers? Here are five elements to consider.

Your HMDA data submission is less than a month away. Once it's submitted, the regulators will begin collecting, reviewing and analyzing your data. This raises two key questions: Do you know what they'll find? Do you know how your financial institution will stack up?

Back in September 2014, the FFIEC released the Home Mortgage Disclosure Act (HMDA) data from 2013 calendar year. The data was gathered from more than 7,000 financial institutions including banks, savings associations, credit unions, and mortgage companies.

Accoding to the government, HMDA has three purposes: 1. To determine whether financial institutions are effectively serving the housing needs of their communities; 2. To help public officials determine how to distribute public-sector investments so as to attract private investment to areas where needed; and 3. To identify potential discriminatory lending patterns and enforce anti-discrimination regulations. As reason number three indicates, a regulator’s evaluation of a financial institution is strongly influenced by their HMDA data

Flags raised by this data may lead to additional scrutiny in the future. It’s very important that your institution understand and explain the story that your HMDA data tells about your institution. 

Each year, the March 1 submission deadline and the September release both underscore the following five key Fair Lending data elements to review.

5 Fair Lending Data Elements to Review

The best thing you can do to proactively manage Fair Lending compliance is to analyze your data. Analyzing your data will identify statistically significant disparities, and help give you time to understand why they exist. This puts you in a great position to understand your story. Based on recent regulatory language and guidance, here are five important Fair Lending compliance data elements to review.

1. Data Integrity

Having confidence in your data is critical. Without quality data, you may not be able to accurately analyze your data and draw conclusions. Ask yourself: does this data look accurate?

How do you know if your data appears accurate? There are a couple ways to telll: You can quickly compare three areas: rate of "data not provided," withdrawal rate, and denial rate. How do those rates compare to prior years? How do you compare to industry?

Consider that there are different business models that lead to different HMDA numbers (e.g. brick and morter vs. call center). Some simple comparisons like these will help you think through the effectiveness of policies and procedures. You could also conduct a traditional HMDA Scrub.

2. Marketing

Review your application rates to compare the proportion of prohibited basis group applicants to the group’s representation in the total population of the market area (e.g. census data). Said differently, consider how your application rates compare to your underlying market area demographics.

3. Underwriting

Review your denial rate frequency for disparities for applicants with monitored prohibited basis characteristics in comparison to control group. Are your denial rates higher for prohibited basis groups?

Also review your denial disparity index, which is the rate of denials of a specific prohibited basis group versus the rate of denials for the control group. The control group is typically white, non-Hispanic males.

4. Pricing

Historically speaking, lenders have reported the spread (difference) between the annual percentage rate (APR) on a loan and the rate on Treasury securities of comparable maturity – but only for loans with spreads above designated thresholds. Rate spreads are reported for some, but not all, reported home loans. The frequency of rate spreads has dropped through the years (see historical data).

Today, many lenders have only a small portion HMDA LAR with a rate spread. However, pricing remains one of the top Fair Lending risks the regulators explore. If possible, append your APR data to your HMDA data and determine if there are significant disparities between groups.

5. Redlining

Review your data to determine real or implied redlined areas by evaluating if there are significant differences in the number of loans originated in areas with relatively high concentrations of minority group residents. Consider if there are significant differences between denial rates in census tracts with higher concentrations of minorities. Regulatory and consumer compliants highlight the importance of knowing your redlining risk.

The Value of Benchmark Analysis

As alluded to above, you should not only evaluate your institution’s performance, but also evaluate your institution’s performance in comparison to peers. Using benchmark data will provide valuable context, and help you develop a clearer picture of your institution’s performance.

In addition to compliance insights, HMDA benchmarks can also help your organization gain competitive insights. For example, this data might show popular products in the market or sold by competition, approval rates, and demographics of who is buying.

By reviewing national benchmarks, you will gain the context you need to ensure accurate, effective and meaningful analysis.

With national benchmarks, you can understand how your bank fits into the bigger picture. When appropriate, we also recommend that you benchmark your data against banks of a similar size, banks with similar operating models, or banks in similar market areas. For example, you may benchmark your data against banks in your state, county, or MSAs with a similar business model. Using these different benchmarks will help you gain valuable context for your financial institution's performance.

TRUPOINT Viewpoint: With the addition of new HMDA Plus data fields on the horizon, we can expect some changes to the public data released. That said, the fundamental risks - like marketing, underwriting and pricing -  evaluated by Fair Lending data analysis will remain the same.

More than ever, you need to know your data story after you file on March 2, 2015. You should take the time to explore your data, and understand what regulators might see. We know that incorporating benchmarking data into your analysis can provide great insight, and help you understand how your numbers compare. The best defense is a good offense, so we recommend that you be proactive in your data analysis this year. March 2, 2015 is not the finish line - it's the starting point for a year of beneficial data analysis.

The 2013 HMDA National Benchmark report is available! Use this free report to gain a clearer understanding of how your data compares. 




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