The Home Mortgage Disclosure Act seemed to be the hot topic of the week recently at the Consumer Financial Protection Bureau.
But it wasn’t the announcement of proposed regulations implementing the Dodd-Frank Act provisions for enhanced HMDA reporting, which banks have been anticipating.
Instead, CFPB announced enforcement actions against two companies for Home Mortgage Disclosure Act violations. And it issued guidance on HMDA compliance management and HMDA resubmission thresholds.
Two live reminders of a basic
Two companies, one bank and one for-profit mortgage lender, under CFPB’s jurisdiction were ordered to pay civil money penalties for HMDA violations.
This is not a particularly unusual occurrence. Banks and mortgage lenders continue to be cited for HMDA violations due to data inaccuracies and late filings, even after all these years. The bank in question had a 38% sample error rate. The mortgage company had errors in its HMDA Loan Application Register going back several years. They were not isolated or minimal errors.
The two cases serve as a reminder that HMDA data accuracy is still important and not to be taken lightly.
Along with the enforcement actions, the CFPB issued guidance for banks and other mortgage lenders within its jurisdiction on HMDA Compliance Management and its HMDA Resubmission Schedule.
Compliance management guidance
The CFPB HMDA compliance management guidance does not offer any surprising new insights into what the regulator is looking for in good HMDA compliance management. It is what you would expect for any function, pretty much a standard laundry list:
• Employee training
• Policies and procedures
• Internal controls
• Reporting systems
• Reviews and monitoring
• Assignment of responsibility
• Board and management oversight
• Corrective action of identified deficiencies
Obviously, the hard part is making sure the training and internal controls are effective, the policies and procedures are comprehensive, the reporting systems and management oversight are appropriate, and the monitoring is sufficient to do the job.
New resubmission guidelines
CFPB’s HMDA Resubmission Guidelines outline the agency’s practices relating to requiring institutions to resubmit a LAR that exceeds a minimum threshold of errors.
Up until now, CFPB has been using the Federal Reserve Board’s standards for resubmission. The resubmission threshold is based on the number of LAR entries reported.
Under the CFPB’s new resubmission standards:
• Institutions that report fewer than 100,000 transactions would be required to correct and resubmit the LAR when 10% or more of the HMDA LAR sample entries contain errors.
• Institutions with 100,000 or more LAR transactions have a threshold or 4%. The error rate is based on a sample of 79 files.
The resubmission guidance is what CFPB uses when it conducts an examination of HMDA data. And, it is flexible. The threshold may be lower if the examiners judge that the errors at any level prevent an accurate analysis of the institution’s lending.
Keep you eye on the ball
The goal at the institution should be accuracy and timely reporting. We’ve been doing this a long time now and it is about to get more complicated with the additional reporting burden added by Dodd Frank amendments to HMDA. So, while we’re waiting for those HMDA proposed amendments, let’s not forget that we still have to comply with Regulation C as it is currently written.