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HMDA - Beyond Getting it Right

By Jeff Schmid, CRCM

As compliance officers and loan operations staff, we are all too familiar with the Federal Financial Institutions Examination Council (FFIEC) publication “HMDA – Getting It Right.” But what if we get it wrong? And what are the ramifications? Hopefully, this article will help you overcome the less-than obvious errors that could result in a Loan Application Register (LAR) scrub and refile.

First, it is important that you understand whether your bank is a large reporter or small reporter, or if you even must file in the first place. Prior to September 2022, many smaller banks enjoyed the benefit of financial institution exemption because they originated less than one hundred mortgages in each of the preceding calendar years. That changed with a ruling that vacated the 2020 loan volume threshold and reset the limit back to twenty-five mortgage originations and suddenly, these small community banks found themselves scrambling to begin the collection and reporting process. This included those banks, large and small, that originated at least two hundred home equity lines of credit, down from five hundred.

Second, the refinance craze of 2019–2021 set a new bar for those banks that originated more than five hundred mortgages in each of the two preceding years. It required these banks to report on all forty-eight data points, but when volume fell in 2022 and 2023, they found themselves to fall back under the originator exemption, however, they continued to collect and report on all data points.

There are really 110 data points, not forty-six. When you break down the number of sub data points, you will find that there is more room for error than originally thought. Be sure when you review your LAR, you review all data fields collected and not just those you are required to report on. Identify errors in your collections process early before you transition to large data filing.

Garbage in is garbage out. Most institutions will rely heavily on the interface between the Loan Origination Software (LOS) and their HMDA LAR software, however, if certain data fields like income are not updated in the LOS prior to creating the LAR record, a bank will find this to be a systemic error, resulting in possible scrub and refile.

Under HMDA reporting, only one address can be entered. Therefore, when you have a 2-4 unit property with a range of addresses, only the first numbered address should be entered in your LAR. Many banks in 2023 had their 2022 LAR rejected because of this issue.

In the hierarchy of Loan Purpose, we also need to be aware that “Other” cannot be used in a business transaction. In fact, if you use “Other” in your purpose, be sure this aligns with TRID purpose of Home Equity.

Even though you may have successfully submitted your LAR for 2023, take some time to run some quick analysis before your next exam. Compare “Purpose Code” to “Occupancy Type”; look for income that is either too high or too low as compared to all other entries; where N/A is listed as income, compare this to “Occupancy”; where zero is listed as income, compare this to your underwriting where current assets are expected to repay the loan; review the address column to be sure only one address is listed.