Now that more than half the year is gone, many banks are starting to look more closely at their new 2018 HMDA LAR requirements because they have adequate volume to do testing. TCA wants to share with you what we have found in doing preliminary HMDA LAR validations. Many of the issues we’ve seen are software based as many of our vendors are still working through programming changes. The weaknesses and exceptions we’ve found are a resource for you to use to study your filings to see if similar issues exist. A quick review of our findings should assist you in determining if the processes you have established will work and alert you to some issues you’ve not considered.
Identification of Source Documents
The first issue we have seen is that many banks do not have written procedures identifying the source documents to be used for data collection. Loan files often show multiple data for the same HMDA field: for instance, the date of application, which can appear in many places. This is most common in a reportable commercial loan file; however, it is not uncommon in consumer reportable files. Your written procedures should identify the document and field that will be used as the application date so the people responsible for accumulating and verifying HMDA data know where to look. Establishing this important field provides consistency to make it easier for the examiners to verify the HMDA‐LAR when they do data integrity tests.
The second issue, and probably the most critical, lies with our loan origination and HMDA software vendors. A comment we hear often is, “I’m not worried about HMDA; our software vendor will handle it.” The reality is that many banks are experiencing difficulty with software formatting and integration of loan data when importing HMDA data from a bank’s loan operating systems.
For example, what credit score do you use when making your credit decision? Most procedures we’ve reviewed indicate that the lowest middle score is used – implying that when underwriting, both the applicant’s and co‐applicant’s scores are compared and it’s the lowest of the two that is actually used in the credit decision. The challenge is that, in the majority of reviews we’ve completed, the credit scores for both applicants are being exported. Exacerbating this issue is that HMDA software vendors are waiting for the CFPB to clarify the reportable fixes necessary for the recent changes in the law. A temporary solution for banks is to export HMDA data from your origination systems into an excel spreadsheet to assist in validating your data.
The third and last item is our listing of common errors found in our validations. The HMDA Guidance from the Small Entity Compliance Guide is providing links to the rule‐making guidance:
|HMDA Data Field||Errors||HMDA Guidance|
|Government Monitoring Info||Telephone/Internet/Email Applications: If GMI information is not provided, the Loan Officer should not provide the information based on visual observation or surname.|
Face‐to‐Face Application: If the borrower provides the information, GMI collection is not based on visual observation or surname.
Face‐to‐Face Application: If the information was not provided by the applicant, the Loan Officer must provide the information based on visual observation or surname. The loan officer may not select subcategories when providing this information.
|Section 5. 1 (Page 44)|
|Age of Applicant/Co-Applicant||Not calculating age using the initial application date of birth.||Section 5. 1 (Page 44)|
|ULI Number||Incomplete or missing ULI numbers.||Section 5.2 (Page53)|
|Initially Payable to Bank||Adverse action type loans contained incorrect code “3” and should have used code “1” since they were bank portfolio loan applications.||Section 5.4 (Page 56)|
|Pre‐Approval||Incorrectly recording “0,” however, only codes “1” or “2” are available.||Section 5.5 (Page 56)|
|Loan Purpose||Incorrect use of refinance and cash‐out refinance codes.|
Multiple loan purpose not following the hierarchy to report the correct loan purpose.
Refinance codes reported incorrectly when there is no refinance of existing debt on the property of which the “Other” code would apply.
|Section 5.7 (Page 57)|
|Loan Amount||Loan amount does not match the legal obligation document.|
Loan amount in the wrong format and not truncated to the nearest 1,000.
|Section 5.8 (Page 58)|
|Loan Terms||One-time close Construction/Perm loans do not include the term of the construction phase as documented on the note.|
Loan terms recorded in years and not months.
|Section 5.9 (Page 61)|
|Action Taken Date||Action taken date not consistent with note date.||Section 5.10 (Page 62)|
|County Code||County code is in wrong format and not in the required five digit number.||Section 5.12 (Page 64)|
|Census Tracts||Census tract code is in wrong format and not in required 11digit number.||Section 5.12 (Page 64)|
|Property Value||Incorrect value reported which was not utilized in the credit decision.|
Field left blank where no value was utilized in the credit decision; however, correct data should be NA.
When several properties are securing the loan, the total value of all the loans is not being reported on the LAR.
Not reporting the value used in making the credit decision.
This is often the lower of the sales price or appraised value.
|Section 5.17 (Page 70)|
|Total Units||Incorrect code utilized for more than one unit.||Section 5.18 (Page 71)|
|Debt‐to‐Income||The DTI does not match the underwriting source document utilized in the credit decision.|
DTI does use two decimal places.
|Section 5.20 (Page 73)|
|Combined Loan‐to-Value||The CLTV does not match the underwriting source document utilized in the credit decision.|
CLTV does not use the two decimal places.
|Section 5.21 (Page 74)|
|Credit Score/Credit Score Mode||Credit Score and Credit Model used in the credit decision is not reported.|
Credit Decision not following Bank’s underwriting loan policy standards.
Incorrect codes recorded for not applicable or no coapplicant.
|Section 5.22 (Page 75)|
|Introductory Rate Period||Construction/Perm loans with an initial rate with a change to permanent are not captured in the field.|
ARM initial rate period is not reported properly in this field.
|Section 5.25 (Page 83)|
|Rate Spread||Rate spread field left blank whereas the code should be NA.|
Open‐end lines of credit not utilizing origination date for lock date since the product is a variable product.
|Section 5.26 (Page 85)|
|Interest‐only Payment||One‐time Construction/Perm loans not reflecting the interest‐only payment period for the construction phase||Section 5.27 (Page 90)|
|AUS Results||Results did not match AUS feedback in the loan file.||Section 5.23 (Page 77)|
|Discount Points||When there are no discounts points, the bank is incorrectly reporting NA, however, the field should remain blank.||Section 28.3 (Page 92)|
|Lender Credits||Lender credit does not match Section J of the Closing Disclosure.|
When there is no lender credit, the bank is incorrectly reporting NA, however, the field should remain blank.
|Section 5.28.4 (Page 93)|
|Type of Purchaser||Data input in this field did not match the purchaser information in the loan file.||Section 5.31 (Page 96)|
Resources and Tips
The CFPB has issued “A Guide to HMDA Reporting ‐Getting it Right!” which provides the necessary guidance to complete the 2018 HMDA LAR. The CFPB also provided a Small Entity Compliance Guide which contains additional information by providing more details and examples of various data fields. A word search in the Small Entity Compliance Guide on key words will quickly assist in finding the section to assist in data field information.
Of course, the elephant in the room is the pending update to the HMDA reporting fields for those institutions that meet the volume limitations identified in the newly passed Senate Bill 2155. The CFPB has stated these codes will be provided in “late summer.”
That being said, TCA’s recommendation remains that you should stay the course and continue to collect all data fields until we receive documentation on what fields will be exempt and the codes we need to report to reflect that exemption.
Stay tuned for TCA’s next HMDA article on reporting purchased loans.
As your compliance partner, TCA is ready to provide the resources to help your bank stay on course and compliant with your 2018 HMDA data submission.
Now’s the time to TEST since year‐end is fast approaching!
TCA can test HMDA data accuracy or provide customized onsite or offsite training. Contact our office at 800‐934‐7347 to schedule a time for a review.