HMDA: Finding and Managing Risk

Now that the 2004 data is out, our concerns about HMDA and the related risk have a little more focus. Under previous HMDA data collection and reporting systems, our focus has been on capturing specific data items and then entering and reporting them accurately.

Some of the old challenges are now managed fairly well. For example, we have gotten pretty good about identifying and reporting the census tract. And, if our system fails, there is always that handy FFIEC website.

We don't have too much trouble coming up with a specific application identifier. Loan numbers combined with application tracking provides what we need. There is the occasional problem with an application that has been resubmitted, but this doesn't usually happen often enough to make the common violations list.

With the new data and reports, however, some old and familiar information takes on new significance. For example, the concerns about pricing call attention to application date to compare pricing and to applicant race or ethnicity to compare treatment. And all of these information items are now being looked at in the context of census tract with concerns about predatory lending and reverse redlining.

Because of the new attention, some data collection now carries an increased risk. Failure to capture the correct application date is now much more of a problem than a single write-up. It can have an impact on the entire data analysis and is made especially sensitive as we look at applications by monitoring data, product, location and pricing.

One of the nagging problems that underlies HMDA data errors is failure to consistently document loan applications. For example, there should be a consistent calculation of income located on a specific document, such as a lender's worksheet. Without this consistent documentation, staff entering data must cruise through the loan file and select a number. The methodology is not likely to be consistent. Loan policies and procedures should establish what information should be documented and where in the file this documentation should be placed. In order for this to work, lenders must be held accountable for failures to document in accordance with policies.

In this issue, we take a look at HMDA risks, both old and new and the suggest some responses to these risks that should be part of your compliance program - in addition to that documentation problem.

Finding and Managing Risk Chart

Copyright © 2005 Compliance Action. Originally appeared in Compliance Action, Vol. 10, No. 12, 10/05