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5 Things the Best Compliance Officers Will Do with the New Public HMDA Data

5 Things the Best Compliance Officers Will Do with the New Public HMDA Data

Posted by Trey Sullivan on Oct 3, 2017 9:00:00 AM
Trey Sullivan
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Last Thursday, Sept. 28, the regulators released last year's public HMDA LAR. When the public HMDA LAR is released, it sparks a lot of Fair Lending compliance activities. But which activities are the right ones - and why are they so important?

With the wealth of information out there about HMDA, HMDA Plus, and the recently released 2016 public HMDA LAR, you'd be forgiven for not knowing exactly where to start. Let's quickly run through a few reasons why it's important to take action now:

  • The regulators analyze your HMDA data to identify potential risks, and prioritize the "riskiest" (or at least, riskiest-looking) institutions for exams. You need to know what your data says about you, and how you compare to peers, to anticipate future compliance exams and exam focal points.
  • This data provides powerful insights about the market and the industry, at a national and a local level. As you plan for growth and budgeting in 2018, the HMDA LAR data can help guide your marketing and sales initiatives.
  • And most importantly, using this data in your Fair Lending analysis will help you identify disparities and proactively mitigate risks. This means that you can help ensure that risk exposure doesn't get out hand.

Here are the 5 steps all of the best compliance professionals will take to respond to the release of the 2016 public HMDA LAR, in the right order.

Each one of these steps should be relatively simple, and certainly apply to your institution. In addition, they'll help ensure you're taking a proactive approach to managing Fair Lending and HMDA compliance risk. Here's what to do with public HMDA data:

1. Reach Out to Your HMDA Analysis Partner to Ensure They're Ready to Analyze with the New Data


The new HMDA LAR data provides a wealth of information about mortgage lending and changes in the industry. You need to be ready to leverage it as quickly as possible, so it's important that you make sure your partner in HMDA analysis is ready.

Our developers got to work last week importing the new HMDA LAR data into the system, and our team spent Friday and this past weekend testing. If you're a TRUPOINT Analytics  customer, know that the new HMDA data is loaded and ready to go. (If you don't yet have 2016 or 2017 data in TRUPOINT Analytics, now is a great time to upload it!)

Feel free to reach out to your account manager or customer success manager for more details. 

2. Prepare to Analyze Your Fair Lending Compliance with the New HMDA LAR

One of the most important steps in responding to the public HMDA LAR release is analyzing your data. As you know, the regulators will use this new data to prioritize institutions for Fair Lending compliance exams. 

The benefit of incorporating this data as quickly as possible is that you can be proactive in identifying disparities that may attract regulatory attention. With that knowledge, you can respond more easily and have more time to fully understand what your data tells about your institution. 

Your preparation for this analysis may consist of:

  • Saving a copy of the previous year's analysis, so that you can compare changes over time.
  • Reviewing your current primary risks in order to dive deeper into those issues.
  • Setting up a time to review the data with your dedicated Compliance Analyst, if you're a TRUPOINT customer.

Depending on your institution, your risks, and who is involved in data analysis, you may need to take other steps as well.

As you prepare, you may also want to consider some of the nationwide trends in the HMDA data. The CFPB has released an interesting interactive tool to allow you to explore the data on your own.

3. Review Your Disparities & Discrimination Risk

Fair Lending regulations are designed to ensure that similarly situated individuals are treated similarly, and prevent discrimination.

Disparities between your control and prohibited basis groups or individuals are relevant because they may indicate risk of discrimination. You're looking for disparities in application rates, withdrawal rates, denial rates, pricing, underwriting, servicing, and more. The regulators are looking for these disparities, too. Disparities (and their severity) will be one key way that they prioritize institutions for exams in 2017, 2018, and beyond.

Remember that disparities do not always mean discrimination. Analyzing your data is the only way to tell for sure.

When you do identify disparities, try to dive deeper. You'll be looking to see if those disparities are statistically significant. You'll also be trying to explain what might be driving them.

This may spark additional investigation into policies, procedures and practices that could be leading to disparities and discrimination risk.


4. Compare Your HMDA Data to Updated Peer, Benchmark, and Competitor Data

One of the top benefits of new HMDA data is that you get new benchmarks, peer performance data, and insights about your competitors. When you compare your data to national, regional and local benchmarks, you'll gain insights about your performance and even where you can improve. 

Plus, when the regulators review your HMDA data for Fair Lending compliance, they will also consider how your compare to peers. For example, if your denial rate to Asian-American applicants is higher than your denial rate to control group borrowers, but your denial rate disparity is lower than that of your 50-200% benchmark, you're outperforming your peers.

You need to be confident talking about your disparities, what's driving it, how those risks are mitigated, and how your performance compares to others in your industry and market. That way, you'll be in the best position to explain the story your data tells to regulators, your Board of Directors, and anyone else who asks. 

5. Assess Your Redlining Risk with the 2016 HMDA LAR

REMA-Redlining-Analysis-TRUPOINT.jpegAs you know, Redlining has been a regulatory priority for the last 18-24 months. Based on language we've seen, and what we're hearing in the industry, Redlining remains a focal point and Redlining analysis is still a necessity. The CFPB's annual Fair Lending report, released last spring, listed Redlining as one of their top 3 compliance priorities for 2017-2018.

The new HMDA data provides a great opportunity to re-assess your Redlining performance.

As you analyze your data and compare it to the new HMDA LAR, look for any indications that high-minority and low-to-moderate income areas are being excluded or treated differently. As a TRUPOINT Analytics customer, you may already have access to the in-depth Redlining Analytics module. If not, reach out to your account manager or customer success manager for exclusive customer pricing.

Redlining risk is uniquely tied to both Fair Lending and CRA compliance, and risks can unravel your hard work in both areas. We really can't overstate the importance of Redlining compliance analysis in today's environment. 

Bonus Tip: Use the New HMDA LAR to Develop a Strategic Plan for Growth

If the above steps seemed too easy, here is another, more challenging one: try to use this new public HMDA data to develop a strategic plan for growth!

The new public HMDA LAR means new insights into your competitors' performance, and how you stack up. You can see how their loan volume compares, and even where they are lending. Leveraging this data can lead to a strategic plan that is realistic, responsive, and achievable. 

branch-network-plan-strategy-789213-edited.jpgAs you grow, it's important to consider your compliance risk exposure. Whether you're looking to open new branches, close older ones, relocate branches, or replace them with deposit-taking ATMs, you need to understand the compliance implications. The right location with the right floorplan offering the right services can not only improve your business, it can reduce your compliance risk. 

This is also true if you're going through a merger or acquisition. Remember: Fair Lending and CRA risks can derail M&A plans.

If you or the regulators have already identified Fair Lending, Redlining, or CRA risks in your business or market, it's absolutely essential to understand how changes to your branch and ATM networks will impact your compliance.

In conclusion, the release of the public HMDA LAR provides valuable opportunities for improving your compliance program, reducing your risk, and preparing for growth.

TRUPOINT Viewpoint: Strong Fair Lending and HMDA compliance relies on regular, insightful analysis of your HMDA data. Every year, the release of this public HMDA LAR provides an incredibly valuable opportunity to refocus on Fair Lending and HMDA compliance, and reconnect with the story your data tells. HMDA analysis is an essential part of your compliance program, and it doesn't have to be difficult.

Whether you're new to Fair Lending compliance or am experienced pro, a small community bank or a multi-billion dollar financial institution, know that there's no need to spend tens of hours on gathering, analyzing, and interpreting your data. You don't need to "break the bank" and you certainly don't need to struggle to implement software. 

TRUPOINT Analytics makes this analysis easy, cost-efficient, and stress-free. As a customer, you'd get state-of-the-art software bundled with outstanding service and unlimited support - all included with your subscription.

More than 500 of your peers are already working with TRUPOINT on improving their Fair Lending, HMDA, Redlining, and CRA today. See what all the buzz is about. Get a free sample report today!

Get a Free HMDA Sample Report!

Topics: HMDA, Lending Compliance, Product Insight, Ntransmittal, CFPB

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