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3 Benefits of Analytics Software vs. Manual Analysis of Your HMDA Data

4 min read
Oct 2, 2019

In case you missed it, September 26th was National Compliance Officer Day. We're thankful for the important work compliance officers do every day, and here's why!


Are you still analyzing your Fair Lending data manually? If so, it’s time to consider a different approach. Here are the benefits of replacing a manual process with a software solution.

Even though it’s 2019, some financial institutions still manually analyze their data for Fair Lending risk. In almost all cases, manual analysis is not adequate for today’s Fair Lending compliance standards.

In this post, you’ll see the 3 key benefits of using software to analyze your Fair Lending data versus manual analysis.

There are reasons – frankly, most of them bad – why a financial institution would choose to manually analyze their HMDA and consumer lending data for Fair Lending risk. Here are a few of them:

  • We’re a small financial institution and we don’t have a lot of Fair Lending risk.
  • Fair Lending analysis software is too expensive.
  • Our last exam went well, so we’re not going to worry about adding software right now.

Did you know we offer a HMDA Transmittal solution?

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Unfortunately, these reasons probably won’t hold up under regulatory scrutiny. Here’s why each of those excuses don’t work:

  • If your financial institution provides products or services for any part of the crediting process, you have to comply with Fair Lending. A big part of compliance is knowing your risk – no matter how small you are – and monitoring is central to knowing your risk.
  • There are a lot of Fair Lending analysis software options on the market, and some (like Nfairlending) use an asset-based pricing structure to ensure that it will fit in any budget.
  • Given all of the changes in Fair Lending and HMDA compliance over the last two years, you need to be proactive in analyzing your risk, even if that last exam went well.

Related: Fintechs Lead the Way for Digital Transformation in Financial Institutions

Manual analysis usually doesn’t effectively identify and address Fair Lending risk.

Here are the benefits of using a software to analyze your data for risk.

1. Protect Limited Resources, Including Time and Money

If you’re manually analyzing your Fair Lending data, chances are you’re spending hours if not days on the task. Consider the hourly cost of all the time you’re spending on crunching numbers. When factoring that into your budget, you might be surprised by how much you’re spending.

Think about it: If you’re spending 2.5 hours per week on Fair Lending data analysis and reporting, and your salary is around $70K per year, you’re spending well over $4,000 on Fair Lending analysis already. If other colleagues are also involved in the manual analysis, that cost is even higher.

Depending on the size of your institution, Fair Lending Analysis software could be less costly than that – and you’d get so much more value.

In addition, time you’re spending on analyzing Fair Lending data is also time you’re not spending on training, updating policies and procedures, monitoring complaints, tracking exceptions, or improving your culture of compliance. Your time is limited, and your expertise is in high demand.

When you choose to allocate resources to a software solution, you’re also freeing yourself up to focus on other high-priority areas of compliance. It’s a win-win.

2. Gain Expert Guidance and Insight

When you’re manually analyzing your Fair Lending data, you’re probably working alone or with a small team of colleagues. In this environment, even if you are an expert, you’re probably not getting many different perspectives. You can fall prey to tunnel vision.

With a software solution, you get all of the market knowledge and insight built into the platform’s functionality. The features and benefits of any Fair Lending software are based on industry best practices and regulatory guidance, so you know that it’s going to help you zero in on the most important areas to watch.

A compliance analysis solution is regularly updating and improving based on changes in the regulatory landscape. That helps you stay up-to-date on regulatory requirements and expectations.

"I appreciate that Ncontracts regularly improves its system. That makes me feel confident that as we grow and as industry expectations change, Ncontracts will help us stay on track."

Using a software solution also provides you access to a team of compliance experts who look not only your data, but the data of hundreds of other institutions. Every day they explore the data from a variety of angles and deliver all of that insight to you.

The cost of a team of four analysts would be around $240K per year, while a software solution and the team that supports you may be just a few thousand. Good compliance analysis software provides you the flexibility to stretch your budget into areas other than staffing.

3. Proactively Prepare for Scrutiny from Examiners and Activists

Fair Lending compliance today isn’t just about your next exam, it’s also about community groups and activists. These days, there are savvy, data-driven advocacy groups that specialize in Redlining, Fair Lending, and/or CRA compliance.

Some of the interested groups include academia, politicians, states, municipalities, reporters, community groups, activists, regulators, and agencies, including HUD, the DOJ, the CFPB and prudential regulatory agencies.

Fair Lending applies to both HMDA and non-HMDA lending, but the HMDA data gets a lot of the attention from reporters and activists. 

And remember, the HMDA data is public. Anyone can look at it and download it. That means your financial institution has no idea who is looking at it, when, or how often.

Any interested party can gather the data, analyze it, and tell a story about your institution. If you don’t have a strong, multi-faceted system for analyzing your data and comparing it to benchmarks, you will be at a disadvantage when you try to respond to their narrative.

Remember, three investigations were opened after Reveal’s investigative reporting on Redlining back in 2018.

A good Fair Lending analysis software will empower you to know the story your data tells. Whether you’re going through an exam or responding to journalists and activists, having a strong Fair Lending analysis solution and teams of experts on your side can make a big difference.

You’re not analyzing your HMDA and other lending data just for fun – you’re analyzing it to be a better financial institution, to reduce your risk exposure, to meet compliance requirements, and to identify opportunities to grow. All of these goals matter. How you approach the analysis also matters. Isn’t it worth it to do it right the first time?

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