Benchmarking data provides context and perspective on your internal performance, which is critical to understanding your compliance risk. The CFPB's recent guidance on HMDA data and changes with QM/ATR mean it’s more important than ever to know your numbers. This public release of HMDA LAR data provides us a valuable source for benchmarking. Do you know how your HMDA data compares?
You know to review your data internally for potential disparities, including risk factors like marketing, steering, and underwriting. But are you reviewing it externally? Real understanding of your loan data means you need to analyze your data inside and out, and using benchmarks can help you achieve that important external context.
Recent CFPB guidance on HMDA, DOJ settlements, and changes in QM/ATR all emphasize the importance of understanding your internal data for HMDA reporting. While reviews of your financial institution’s data are critically important, a review solely focused upon your internal data may not provide the broad market perspectives required to answer management and regulator questions.
Knowing only your internal HMDA data may not be enough to achieve compliance. This is where using benchmarking data can help.
Using only internal analysis of your loan data can leave you with a “knowledge gap” that may lead your team in the wrong direction. Analyzing the national benchmarks can help avoid this. Some simplified examples are below:
Example 1: What does it mean if your financial institution’s HMDA data shows that 14% of your applications are from African Americans? Is this data point good or bad?
With Benchmarking Data: By looking at the census data for the market, we learn that 15% of the underlying market population is African American. In comparison, the market’s HMDA benchmark data shows that 8% of the HMDA LAR applications are by African Americans. These reference points offer you more clarity about your data.
Example 2: Let us assume your internal HMDA data shows that Hispanic applicants have a higher denial rate than the control group (e.g. your control group denial rate is 4.0% for HMDA applicants and 5.0% for Hispanic applicants). On the surface, this would imply that you are 25% more likely to deny a Hispanic applicant when compared to your control group. Does this give you enough perspective?
With Benchmarking Data: By looking at the data for the market, you discover that the aggregated HMDA LAR within the market shows a denial rate closer to 20%. Your data is showing denial rates much smaller than market (4-5x smaller). While many factors should be considered, the broad market data may point to a different issue. For example, you may have a HMDA data collection accuracy issue, training issue, or a unique channel impacting the results.
Working in concert with your internal analysis, benchmarking data provides powerful insights for your organization.
In addition to compliance insights, the national HMDA benchmarks can also help your organization gain competitive insights, which are useful for marketing purposes. For example, this data could help show the products the market/competition is selling, the approval rates, and demographics of who is buying. Reviewing national benchmarks provides the context you need to ensure accurate, effective and meaningful analysis.
Bottom line: By expanding your analysis to include insights associated with benchmarking data, you will gain valuable context for your compliance risk and performance metrics.
>> Compare and be aware! Request a free HMDA benchmark report by clicking here. You can use the summary report to gain insight into the industry data, review some common metrics used, and contextualize your financial institution's performance.
Subscribe to the Nsight Blog
Share this
Preparing for 2014 HMDA Submission: 5 Compliance Areas to Explore
The Top 10 Worst Excuses for Not Analyzing HMDA Data for Fair Lending Compliance
