A Step-by-Step Guide to Implementing the New HMDA Rules in 2018
In this blog post, you'll learn a few of the most important steps of implementing the new HMDA rules, and see links to all of the most important HMDA resources. Use these steps as guidelines to help ensure your success with implementing the new HMDA rules.
The Final HMDA Rule has introduced a lot of uncertainty and challenges for compliance professionals nationwide. It's a huge change (48 new data fields!), and financial institutions were already burdened with navigating regulatory requirements. That said, we're in it to win it now.
Get your guide to the 2018 HMDA changes:
This post will outline 12 important steps you'll need to take to successfully navigate the updated HMDA requirements.
You'll also get a chance to register for our upcoming 30-minute webinar, "Answers to Your Top 5 FAQs about the New HMDA Rule"!
But back to the main attraction: below are some of steps you'll need to take to navigate the HMDA changes. You will probably have already taken some of them, but if not, there's no time to waste. In addition, you may be doing some of these steps in a slightly different order, and that's fine! The goal is just to provide a framework that you can use. The best plan is the one that works for you.
Step 1: Find Out What Applies to You
You've heard this ad nauseum: the Final HMDA Rule changes the institutional and transactional coverage requirements.
There is likely to be some confusion about whether the Final HMDA Rule applies to you, and if it does, the circumstances under which you have to comply. We're not going to go into too much detail here, because you probably already know all this.
However, if you don't or you'd like to share information with other members of your team, some links to regulatory resources are below:
- Institutional Coverage
- Transactional Coverage
- 2018 Transactional Coverage Flowchart
- Note that page 5 outlines some important exceptions to Reg C.
- ATTN: Large Lenders: Institutions that report at least 60,000 applications and covered loans (excluding purchased loans) in 2019 will have to begin reporting HMDA data quarterly in 2020. These so-called large-volume lenders will submit HMDA data in Q1, Q2, and Q3; they will submit annually as well. The first quarterly submission will be due by May 30, 2020.
- 2018 Transactional Coverage Flowchart
N.B. These links are directly from the regulators' websites. If you have issues with them, you may need to contact the appropriate agency.
Make Sure to Consider the Internal Impact...
Take a few moments, if you haven't already, to understand the departments, staff, internal systems, and practices that are most impacted. Different lines of business and types of lending may be effected (like commercial lending), and it's important that they are prepared to face these changes. Make sure that you know the departments and lines of business that will be impacted, and ensure that everyone is prepared for success.
Step 2: Implement Updated Policies and Procedures
You probably have already formally updated your policies, procedures, and practices to accommodate the HMDA requirements. We're hearing that some institutions have hired or implemented new resources to support these HMDA changes. If that is in your future, such internal changes may also prompt changes to your written documentation and processes.
As you update your policies, procedures, and processes, make sure to consider:
- New institutional and transactional coverage
- New URLA guidelines
- CRA changes
- Additional required data fields to be collected
- New public HMDA disclosure rule
- Updated HMDA training program
- Adjusted HMDA data check timeline
- ULI/LEI requirements
- New HMDA forms
A Strategy You May Find Helpful...
You may find it helpful to tap one person or a small team to be the voice of the HMDA changes internally using a scrum-type process. This tactic is one used by software start-ups and growing businesses. In essence, it creates a temporary project manager to help make sure that you're on track. It also helps to limit the ability of anyone to point fingers at anyone else, because this process ensures that everyone is on the same team and progress is public knowledge.
The idea is that one person or a small team is accountable for ensuring that progress is being made. They outline some of the key goals, list the unique steps to achieve each goal, and identify who is responsible for reporting progress. Each task is assigned a due date (this can be a range of multiple days or weeks). During the weekly check-ups, the person responsible for reporting progress notes whether the team is on- or off-track to complete the project by the deadline.
You may have seen this concept lampooned on shows like "Silicon Valley," but the fact is that a scrum-type approach to project management can really work. Some people prefer a paper scrum board, while others will use a shared spreadsheet. Still others may opt for a tool like Trello.
The options are nearly endless, but if you implement this layer to help manage the changes, make sure that you team can easily adopt it. That, and consistency, are the keys to success.
Step 3: Begin Collecting Data for 2018
Starting Jan. 1, 2018, you are required to comply with updated data collection rules. Once again, we aren't going to go into too much detail about the nitty-gritty of the data collection requirements. There are plenty of resources out there to help you with it - including our HMDA Guide.
In addition, here are some other resources about HMDA data requirements and collection that you might find helpful:
- Complete Reportable HMDA Data Reference Chart
- Guidelines for Collecting and Reporting Demographic Data
- This helpful resource breaks down what data you should collect depending on the Application Taken date and Final Action taken dates on page two.
- Sample Demographic Data Collection Form
Looking for a Sample HMDA Data Collection Form?
We recommend looking on CBANC for some samples designed by other bankers - these seem to be quite popular and high-quality. We have also have also seen some forms produced by other companies that may be a good fit for your needs. We are working on one of our own, which we will share in our upcoming HMDA webinar.
Step 4: Begin Checking Last Year's Data to Prepare for Submission
When you submit your data in March 2018 using the CFPB’s new HMDA submission tool, please note that you won’t be able to submit your data until it is “clean,” i.e. accurate and error-free.
The HMDA platform will block any data set with recognized errors. This means that your data needs to be clean and ready for submission by March 1.
You need to be prepared to resolve any errors before the spring submission deadline, so you will need to adjust your institution’s usual HMDA timeline to accommodate that process.
How Is This Different?
In the past, you would submit the data, error-free to your knowledge, on March 1. Over the next few weeks, you would have gotten a report back with the errors, which you would have a few more weeks to correct. This whole process – which can take months – will now be happening before March 1.
As a result, prepare to begin cleaning and reviewing your data as early as possible, so that you have at least a few weeks to resolve those errors before March 1, 2018.
Step 5: Ensure Your Vendors are Ready for the HMDA Rule Changes
Make sure that your vendors and supporting tools are ready to comply with the HMDA Final Rule. Integrations, APIs, and other ways that you're currently collecting, connecting, and analyzing your data will likely need to be modified and updated.
The changing collection, analysis, and filing requirements may have thrown your existing relationships into a bit of disarray. We've heard through the grapevine that some financial institutions are having to reconsider long-standing relationships as a result of the HMDA changes. In addition, we've also seen that vendor management requirements and regulatory scrutiny of service providers is at a high. Everyone is feeling the pressure.
In Case You Were Wondering...
Ncontracts is prepared to help you navigate these updates. We're developing educated insights about what the regulators will be looking for when they analyze your data, but we're expecting this to change slightly as the months and years pass. These expanded HMDA Plus data fields are new for everyone, including the examiners. We're not yet 100% sure what they will be looking at most closely - no one is - but we are in a great position to be able to evolve as the regulatory expectations and trends do.
Step 6: Communicate Actively with Your Board of Directors
Your Board of Directors carries some personal liability for your financial institution's risk. In part because it's good business practices, and in part because they can be help personally liable, make sure to communicate actively with your Board about the HMDA changes.
You may want to share details about your implementation plan, risks, goals, and challenges. If you're like most of our customers and colleagues, you will have limited time to share this information with them. As a result, make sure to share the most important details first - if you need anything from them, start here and explain why.
In Particular, You Should Communicate This:
Two big responsibilities – ensuring that you’re collecting the additional HMDA data fields accurately, and ensuring that your 2017 LAR is clean before the March 1 submission deadline – will both occur in the first few months of 2018. Make sure to communicate this overlap of timelines with your leadership team, so that you can plan as necessary.
Step 7: Get Familiar with the CFPB's New Tools for Data Checks and Submission
There are a whole suite of new tools designed to make submitting collecting, testing, and submitting your data to the CFPB easier in 2018. They include:
- HMDA Platform:
- This is the tool all financial institutions will use to submit their HMDA LAR in 2018.
- Check Digit Tool
- The new geocoder was originally planned for Q4 2017, but it appears to have missed that release date. However, the FFIEC geocoding tool will be available through 2018.
- Rate Spread Calculator:
We recommend that you or the person responsible for submitting your institution's HMDA LAR spend a little time with these resources, so that you're not trying to learn how to use the tool while you're trying to prepare your HMDA LAR for submission.
If You'd Like to Learn More About These Tools...
The CFPB has released a helpful series of videos to walk users through the online HMDA platform. You may have even attended a webinar led by the CFPB that showed you a preview of the tool. Here are a few of the resources you might enjoy:
- CPFB video introducing the Platform
- CFPB HMDA Platform webinar recording
- Ncontracts blog article that also explains the platform
- Resources for Filers
- HMDA Tool Instructions
Step 8: Submit Your Clean HMDA LAR to the CFPB
When you're ready to submit your data, log into the HMDA Platform and begin the process. As noted above, you can only submit clean data, so don't wait until the last minute.
When you upload the data into the HMDA Platform, you will go through the process of verifying your data.
Note: the HMDA platform will not save your data until you finalize the submission. That means that the regulators can't see your data until you officially send it to them.
Who Can Submit Your Data?
From what we're reading, the regulators aren't explicitly stating that a vendor can submit your HMDA LAR for you. However, they are saying that anyone with a verified email address at a covered financial institution will be able to submit, and that a single individual will be able to submit on behalf of multiple institutions.
That said, the process for submitting is now relatively manual and relatively simple. Once you have HMDA LAR formatting done, we don't envision that the data submission is going to be overly challenging.
Step 9: Analyze Your 2017 HMDA Data for Risk with the New Data Fields
With the expanded HMDA data, Fair Lending analysis and risk is likely to change. We anticipate that disparities will be easier to identify, and potentially more complex to explain.
As you begin collecting additional data about your lending, we recommend that you plan to incorporate analysis into your Fair Lending risk management as early as possible, and more frequently if your risks appear elevated.
It will be simple for the regulatory agencies to analyze all of the data that will be available, and develop a narrative about their results. In this environment, it has never been more important to know your numbers.
How Ncontracts Can Help:
Ncontracts can analyze your loan data for Fair Lending, CRA and Redlining compliance, and provide the guidance you need to prepare for scrutiny. We are actively working on updating and improving Ncommunity to support the new HMDA data fields.
Our Analytics platform already includes some of the key data fields as optional data points, so we're comfortable with exploring the way this expanded data will impact your analysis.
Remember that Ncommunity comes with guided reviews of your data to help you understand the story your data tells. Plus, you'll get access to a dedicated Ncontracts Customer Success team to ensure you get the most out of the system. When you're ready, learn more about Ncommunity >>>
Step 10: Closely Monitor Your New Policies, Procedures, and Practices, Particularly for Data Collection
With the overhaul that this HMDA rule prompts, it's essential that you keep a close eye on your policies, procedures and programs, and make sure that they're working as intended. Unintended consequences and mistakes are likely to occur. Be patient with yourself and your team, but watchful.
There will be plenty of learning opportunities for all of us.
What You're Looking For:
As with any aspect of Fair Lending compliance, you're looking for any risk that discrimination is occurring. Look for qualitative and quantitative evidence that prohibited basis group individuals are being treated differently than similarly situated control group individuals. Risk assessments and data analysis will help you identify your institution's risk exposure in the new HMDA environment.
In addition, look for any evidence that HMDA data isn't being collected consistently or accurately. It's best to catch data collection errors as soon as possible, so that they don't become too large and impede your 2018 data submission.
Step 11: Provide Training on the New HMDA Requirements and Fair Lending Compliance
As we've noted before, it's recommended that you provide general Fair Lending compliance training for all employees, senior management, and Board members. You will probably also want to consider role-specific training for colleagues involved in the crediting process.
With all of the changes to HMDA and your internal policies, practices and procedures to support those changes, training will be really helpful in getting everyone on the same page.
Part of your training program should be tracking attendance and measuring comprehension, as well as outlining (and enforcing) repercussions for failing to attend training or pass the comprehension assessment. Make sure that your training also outlines what is permitted by your policies (i.e. rules for declining or file documentation requirements), and that your training aids are adequate.
Take Your Training to the Next Level...
Consider supplementing your Fair Lending training with sensitivity training to help prevent discrimination by employees who deal directly with applicants and customers. You may want to provide training aids that focus on potential examples of Fair Lending discrimination and tricky situations that could trip up your colleagues.
The CFPB has released a few scenarios that you can use to guide your training.
Step 12: Reconsider Your Fair Lending Risk Assessment Strategy
In order to accomodate all of the different, new aspects of your HMDA process, it's likely that your Fair Lending risk assessments will need to become more robust. While the enhancements will depend on your institution and your risk profile, we believe that it's safe to predict that all institutions' annual Fair Lending risk assessment will be more intense in 2018 and 2019 than in 2016 and 2017. This risk assessment should also incorporate some Fair Lending data analysis for both HMDA and non-HMDA loans.
Your Fair Lending Risk Assessment Should Include:
As you know, your Fair Lending risk assessment should cover every aspect of the crediting process. In particular, make sure to review:
- Compliance Program Risk
- Redlining Risk
- Marketing Risk
- Steering Risk
- Pricing Risk
- Underwriting Risk
- Servicing Risk
Ncontracts Viewpoint: Navigating all of the HMDA changes in 2018 and beyond is a big challenge. That said, Ncontracts is working to find innovative, authentic ways to help and provide real insights. We hope that this blog post helps you achieve your HMDA goals.
In the meantime, you'll enjoy our recently updated Guide to the HMDA Changes: