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Top 13 Proven Benefits of HMDA Software for Fair Lending Compliance [Part 1]

7 min read
Sep 14, 2017

Leveraging a HMDA software for your data analysis and risk management can yield surprising benefits for your fair lending compliance program, and institution as a whole! Read on to learn how today.

By now, you know how important HMDA data analysis is to fair lending compliance. (If you still have questions, request a free denial disparity report for your HMDA LAR.) That said, you may not have spent much time considering the unique benefits of HMDA software for your fair lending compliance program.

Now is the right time to consider HMDA software, and make sure you've got the best solution for your institution. With your HMDA LAR now publically available, you need to be prepared to incorporate the newest data and most current benchmarks. You'll want to hit the ground running with HMDA and fair lending compliance, analyzing your performance as soon as possible after it is released.

Every now and then, we meet a compliance officer who shares that their institution is analyzing their HMDA and other loan data using pivot tables. While it doesn't happen often, we do also hear from compliance teams that aren't analyzing their data at all. The primary reasons for this tend to be:

  • Our budget is limited, and software is just too expensive for us.
  • Implementing a software will likely be too time-consuming and effort-intensive to be worth it.
  • We don't know where to start, and trying to wade through all the information is stressful and overwhelming. If this is you, you'll really like the info kit we shared earlier - it's the perfect place to start.

In this post, the first of a two-part series, we will be debunking those perceptions, and showing you 13 data-backed benefits of using HMDA software.

While most of these benefits are evident in fair lending compliance, some (like improved business strategy) can be felt throughout your institution. Let's get started...

Benefit 1: Save Time

Conducting HMDA data analysis with the right compliance software will save you time. Based on our estimates, many compliance teams spend 96 hours per quarter on analysis, tracking, and reporting.

compliance-time-saveWhile that figure isn't specific to HMDA data analysis, anecdotal evidence suggests that some institutions that are manually analyzing their data are spending days building the analysis models and pivot tables, and at least one more day on understanding the results of the analysis and developing reports - around 24 hours per quarter. (And that's a conservative estimate.)

As you evaluate the time your institution currently spends on analysis per quarter, consider the man hours spent building your models, collecting your data, running the analysis, interpreting the results, and sharing those results with the rest of your team. 

Not every solution will get you up-to-speed quickly and genuinely save you time. It's true that the implementation of some compliance software can be intense, requiring hours of training and sometimes even new hires to support the tool. However, we've dedicated a lot of thought to making sure that Nfairlending is easy to implement.

Most of our customers spend only 2-3 hours per quarter on data gathering, training, analysis, interpretation, AND reporting with our HMDA software.

[Free Report: Fair Lending Denial Disparity Report]

Benefit 2: Decrease Operating Costs

Compliance operating costs have increased by more than 60% for retail and corporate banks since the financial crisis.

In general, HMDA software for your compliance can decrease sales and operating costs by being more efficient. As discussed above, HMDA software can save you time. That time can be quantified into dollars by considering the average salary of a compliance officer - approximately $75,000 - and dividing it by the number of work hours in a year (2,087). That means that the average compliance officer is worth $35.93 per hour. Every hour you save is valuable.

budget-money.pngIn addition, HMDA analysis software can replace the need for new staff. Instead of hiring a new compliance analyst to analyze and interpret your results, a good compliance software can help you get those answers as part of your subscription.

Risk analytics lowered sales and operating costs for 15-50% of banks, according to a McKinsey study. Again, this isn't specific to HMDA software, but HMDA Analytics can reasonably be considered similar. While we can't go so far as to correlate the results, it's an interesting data point that provides valuable context.

Benefit 3: Identify Risk Exposure

This is probably the most well-known benefit of HMDA analysis software, so we won't spend that much time on this one. However, here are some key facts to keep in mind:

  • The regulators use a risk-based approach to prioritize institutions for exams. They identify your risk through data analysis; for fair lending, this often means HMDA data analysis.
  • Regulators will look for disparities in your data to identify potential risk of discrimination. The only way for you to see these disparities is to analyze your data.
  • Every institution has disparities. With the right partner in data analysis, you can determine whether these disparities indicate discrimination or not.

As you can see, data analysis is absolutely essential to fair lending compliance risk management. It's an essential part of your compliance management, and it's also a great way to identify risks before the regulators arrive. If you're a HMDA filer, your HMDA LAR is one of the most important and illuminating data sets you can leverage. 

Once your data is uploaded, Nfairlending identifies your disparities and risk in less than a minute.

Benefit 4: Increase Sales

bank-home-mortgage-lending.jpegThis one may seem impossible, but it's not! We heard from a customer just last week that our advice about taking advantage of a marketing opportunity resulted in both more sales and reduced compliance risk.

After reviewing their data for fair lending and Redlining compliance risk last year, together we identified an area of potential improvement. The compliance team shared these insights with their leadership team, and helped launch a marketing campaign to one of their communities. When the regulators arrived this year, they commended the institution for their performance and efforts. 

Analyzing your HMDA data for compliance can identify marketing and sales opportunities, while at the same time reducing your risk exposure. 

Benefit 5: Respond Quickly to Regulator Questions

If you're in the middle of a compliance exam, wouldn't you like to be able to quickly and confidently respond to examiners' questions? HMDA software help you do this by providing clear insights into your data, and allowing you to understand the story your data tells.

Say that they have questions about a specific disparity. With the right HMDA analysis software, you can quickly and easily navigate to that disparity, click on it, and immediately get more information about it, like:

  • Is it statistically significant?
  • How does that disparity compare to peers? Is it more or less than benchmarks?
  • Were other control group individuals treated more favorably than prohibited basis group individuals?

Spoiler Alert: Nfairlending answers these questions in just a click. Plus, your Nfairlending compliance analyst will walk you thorugh the results in your guided hour-long report review.

In addition, advanced compliance softwares include filtering options that allow you to dive deep into your data analysis. For example, Nfairlending Analytics includes the 50-200% benchmarking methodology favored by some regulators.


Benefit 6: Improve Profitability

This one is likely to be important to key stakeholders in your bank: analytics software can improve your bank's profitability. Risk analytics improved capital efficiency by 10-15 percent in banks, according to the McKinsey study referenced earlier. Again, this isn't specific to fair lending or HMDA analysis, but it is related to using risk analytics in the course of the crediting process - and compliance is certainly a part of that.

In short, compliance analysis will reduce your institution's risk exposure, and compliance software is the most efficient way to analyze your data.

Benefit 7: Enhance Business Strategy

Compliance analysis software helps financial institutions enhance their business strategy in unintended, yet undeniably positive ways. As we mentioned earlier, in-depth HMDA data analysis can identify both risks and sales and marketing opportunities.

banker-news-trupoint.jpgIt can also enhance your business strategy by "teas[ing] out surprising synergies between regulatory needs and business aspirations...Initiatives to grow revenue and optimize pricing can founder if imprecise risk assessment of customer segments leads to poor choices."

Developing business strategies that consider your compliance risk allow your financial institution to grow safely and confidently. 

In addition, if you're going through a merger or acquisition, you will want to consider your compliance risk. In the past, we've seen fair lending and CRA issues derail M&A activity. In addition, opening or closing branches after a merger or acquisition can lead to increased sales, but is often accompanied by increased risk.

Ncommunity helps banks build a better branch network using sophisticated data analysis and compliance expertise. Learn more with this free branch network optimization white paper.

That's it for part one! Stay tuned for part two, which will be published next Wednesday. 

As a compliance professional, you may feel like you understand these benefits, but the rest of your team and leadership does not. You're not alone - that's a common challenge for financial institutions. Hopefully, by sharing some of these institution-wide benefits, you'll be able to more successfully advocate for a compliance software solution. 

Ncontracts Viewpoint: We're proud to provide HMDA compliance software that allows our customers to experience these benefits. Our team and our customers have experienced firsthand the power and value of compliance analysis, and HMDA software.

We use an asset-based pricing system to ensure that all institutions can afford access to solutions for fair lending, HMDA, CRA, and redlining analysis.

Part 2: Top 13 Proven Benefits of HMDA Software for Fair Lending Compliance



Related: How to Build a Strong Fair Lending & Redlining Compliance Management System

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