A few dates loom large for compliance teams nationwide, and March 1st is one. Best practice organizations will use the HMDA submission to launch into the next phase of their annual HMDA journey. Will you?
Managing HMDA compliance cannot be accomplished in February alone. Experience has shown us that best practice organizations use this time to focus on their data and evaluate their compliance programs. Based on our experience and observations, best practice organizations take the following 4 steps after filing HMDA data:
Step 1: Analyze HMDA Data from a Regulator's Perspective
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Best Practice: Once your loan data is submitted, best practice organizations analyze their data. First, they review the data internally for disparities. By analyzing how prohibited basis groups compare to control groups for differences in application rates, withdrawal rates, denial rates, pricing, etc. Second, best practice organizations will also compare their internal data with market benchmark data to see if there are any operational disparities. We wrote about using benchmarks last week in our blog. Click here to request a free benchmarking report.
- Execution Tip: Be prepared to explain your numbers and the associated disparities. For a free sample Fair Lending report, request one today.
Step 2: Proactively Review Your HMDA LAR to Source Data
- Best Practice: In today’s data-centric regulatory world, the importance of data quality has never been higher. No one can analyze HMDA if the data is inaccurate. Best practice organizations evaluate their data accuracy through an independent review that compares the HMDA LAR to the source data. Based on the review, a summary of the noted errors and error rates are provided to the Compliance Committee or management (with recommendations for corrective actions). If substantive errors are noted, the errors must be corrected and resubmitted. Best practice would be to conduct a review on a quarterly and not wait until year-end when it’s time to submit.
- Execution Tip: If you are like most organizations, some of the more common LAR data field errors will include application date, action taken dates, action taken codes (withdrawn vs. incomplete vs. denied), collection of GMI, income, and complete loan omissions. As a reminder, a sample is a subset of applications or loans from within the population that is used to estimate characteristics of the whole population. When errors are found in the sample, it implies that there are errors in the entire population. The CFPB recommends that you should correct and resubmit if you have an error rate of 10% or more in the sample. This number drops to a 5% error rate within an individual data field.
Step 3: Review Policies & Procedures, and Compare to HMDA Review
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Best Practice: Best practice organizations compare their HMDA scrub results back to written policies, procedures and training to identify areas for improvement. Policies and procedures provide the guide map for consistent execution. Consistency in the process is one of the most important ingredients to HMDA compliance. With intricate regulations like Regulation C (HMDA), it is important that you clearly define the HMDA interpretations specific to a bank’s business practices. Without policies and procedures, you leave execution up to individual interpretation.
- Execution Tip: Hold active debate regarding your HMDA policy and procedures. Review your policies to make sure they provide your personnel clear guidance.
Step 4: Conduct Regular Employee Training
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Best Practice: A strong compliance culture depends on every employee, and best practice organizations offer regular employee training. For example, over 70% of HMDA data comes from the loan application. Therefore, success starts with Loan Officer taking the application. If the application is not consistently prepared, it is hard to get anything else right. During the training, best practice organizations will also provide easy reference materials (e.g., flow charts) to help ensure consistent execution well after the training is complete.
- Execution Tip: Train your loan officers. Hold them accountable to following your standard procedures regarding the completion of the loan application. For example, you need to be confident that the loan officers know how to consistently collect GMI.
Now that your HMDA LAR is submitted, it is time to take the first step. Learn what your HMDA data says about your organization - you can't afford not to know. Request a free sample report using your insitution's public HMDA data by clicking here.
>> Click here for a free sample report using your public HMDA, and start analyzing your loan data today!
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