Remember your first time trying to ride a bike? The thought of taking flight without Mom or Dad’s help was terrifying. But with some encouragement and guidance going through the basic steps, before you knew it, you were off on your own.
When it comes to data collection and reporting, we all know the basics. Institutions subject to the Home Mortgage Disclosure Act (HMDA) and Community Reinvestment Act (CRA) are required to collect, record, report, and disclose information about their mortgage and small business lending activity. Every year on March 1, institutions must submit their lending data from the previous year to the federal government. This data is then aggregated by the government and used for many purposes: in CRA exams, by institutions to analyze lending patterns of competitors, by community groups, and for fair-lending purposes.
The new HMDA rule dramatically changes data collection in just about every way: institutions and transactions covered; required data points; collection and reporting of applicant information such as gender, race, and ethnicity; and the processes for reporting and disclosing the data. While most of these data changes apply on or after Jan. 1, 2018, some changes such as institutional coverage and submission/reporting requirements, apply to 2017 data. All changes apply to mortgages and do not impact submissions for small businesses/farms.
For many institutions, gathering the essential data points and meeting regulatory and internal deadlines is a constant struggle under the existing rule. This process will only intensify with the regulatory changes. While it is important to focus on the data changes for 2018, it is critical to take some time to plan. The number of data requirements are expected to increase significantly. Just like riding a bike, you need to remember the basics, such as compiling the data, ensuring data accuracy, and filing the data to the government in a timely manner.
Heads up on submitting 2017 HMDA Data
There are many changes to prepare for in 2017, as the entire submission process for HMDA data will change. There is a new process, platform, and recipient for the submission of 2017 HMDA data to the government on March 1, 2018.
Financial institutions will need a software solution to create an electronic file that can be submitted on the new Consumer Financial Protection Bureau web interface referred to as the “HMDA Platform.” (The HMDA Platform is expected to be rolled out by CFPB sometime in the summer of 2017.)
The HMDA data entry software currently provided by the Federal Financial Institutions Examination Council that financial institutions have relied on for years will no longer be available as a method for HMDA data entry or data submission. As a result, institutions that file both HMDA and CRA will have two completely different submission methods.
In addition, CFPB has added several other changes for HMDA data, including a change in the way data edits are verified, and how the signing officer acknowledges the accuracy and completeness of the data submitted.
These changes may significantly affect the way institutions prepare for submission, as they will necessarily require additional effort in order for lenders to become familiar with new processes, and add time-consuming steps to the already hectic months of January and February.
Importance of data integrity
Accurate HMDA and CRA data forms the basis of key metrics used in fair-lending and CRA analytics as well as examinations, as the data provide valuable information for the public and community groups to rely upon.
In March 2017, CFPB reminded the industry of the importance of data accuracy when it issued its largest-ever HMDA enforcement action against a mortgage company. The enforcement order imposes a $1.75 million fine, and requires the institution to correct reporting deficiencies by improving its HMDA Compliance Management Program, and correcting its HMDA submission data from 2012 to 2014.
The time to clean up your 2017 HMDA data is now! As a best practice, we recommend that institutions work on the data integrity at least quarterly. Filers will have precious little time and resources in early 2018 to scrub data for accuracy since they will also be preparing for all the changes in the submission process. So like riding a bike, the chain and pedals need to be running smoothly to have a safe ride.
Changes to the submission process
Filing 2017 HMDA data by March 1, 2018, financial institutions will need to adopt the new HMDA submission process using one of the identified browser types and new file format. They will also have to explain and validate any edits. Even though the HMDA submission process will have changes, similar to getting and riding a new bike, the basic steps remain the same.
The HMDA process steps include:
• Creating a year-end file.
• Geocoding the data.
• Validating edits: quality, validity, macro and/or syntactical errors.
• Submitting to CFPB via the HMDA Platform, in the required format, and with officer certification.
• Refiling, if required, with data edits and corrections, to the CFPB. (Note: This step begins with 2017 data).
Creating a yearend file
For many financial institutions, loan data is collected and stored throughout multiple systems. However, data captured in various loan origination systems are not always in the proper format for reporting. Accordingly, staff should be familiar and comfortable with merging files, data manipulation, and formatting.
The source data files extracted from the origination system will need to be formatted into the new required regulatory format—a pipe delimited text file (.txt)—for submission of the loan/application register (LAR) to CFPB. The bureau will provide a LAR formatting tool to assist filers with small loan volumes that do not have a software tool or vendor to assist in preparing the HMDA LAR for submission.
Geocoding the data
HMDA and CRA regulations require institutions to report geographic data for the physical location of their residential or commercial applications and loans. Geocoding is the process of identifying the state, county, Metropolitan Statistical Area (MSA)/Metropolitan Division (MD), and census tract code where a property is located. These data points are the required data elements for HMDA and CRA reporting.
The CFPB is in the process of proposing new steps to improve data collection and is taking a closer look at accuracy standards for geocoding methodologies. The bureau is in the process of developing an online geocoding tool, and institutions can choose between the new CFPB geocoder and the FFIEC geocoder.
However, for many institutions geocoding is very time-consuming, especially for properties located in new developments or in rural areas. Properties that fall into these categories may require extensive manual research to locate the physical location of the address.
All edits must be corrected and/or validated before filing with the CFPB. That process consists of passing the lending data through the edit checks (CFPB system) to highlight possible data integrity concerns. With the new changes, edit reports will no longer be sent via email from the Federal Reserve Board (FRB) to the institution’s filer. Instead, an edit report can be viewed and downloaded from the HMDA Platform. All edit verifications must be made online and fully addressed prior to submission. The prior process allowed edits to be addressed after submitting the LAR.
For some institutions, the new edit validation process will be time-consuming due to any validation delays. It is important to identify and resolve the source of any potential errors. It is always best to anticipate potential error issues and allow plenty of time for the online process.
Submitting via HMDA Platform
The core of the submission process changes is driven by the new CFPB online, web-based HMDA Platform. Financial institutions will need a software solution to create an electronic file that can be submitted on the new CFPB web interface. A modern browser is required for submission on the CFPB web interface.
Important note: The HMDA data entry software currently provided by FFIEC that financial institutions relied on for years will no longer be available for data entry or submission. Institutions will no longer be able to use the following submission methods: diskette, through data entry software (DES), email to [email protected], or paper submission.
Additionally, there is a requirement that an “authorized representative” with knowledge of the data certify the accuracy and completeness of the data submitted during the online submission process. Filers will not be allowed to fax or email the signed officer certification.
HMDA submission changes:
Here is a summary of the overall changes to help keep you on track:
• 2017 data collected under current rules submitted annually to CFPB.
• 2018 data collected under new rules submitted annually to CFPB.
• 2020 data collected under new rules, submitted quarterly to CFPB (Threshold for quarterly reporting: 60,000 covered loans in the preceding year).
Additional changes coming in 2020
In 2020, we can expect more changes.
There will be quarterly and annual submission requirements for certain institutions that report at least 60,000 originated covered loans and applications (combined) for the preceding year. If required, the submission is due within 60 calendar days after the end of the quarter, with the fourth quarter data to be included with the annual submission.
There is no time to lose to “get back on your bike.”
Remember your basic steps and keep up with data integrity and edit checks at least quarterly. By doing the basics, you will not have to correct and refile previous years of data in 2018 while compiling the new data reporting elements. Plan ahead for the new CFPB portal changes, have dedicated resources, and plan to file as early in the month of February as possible.
The CFPB has many resources available to help you get ready for all the coming changes. Check early and often.
About the author
Shanon Conroy is a regulatory consultant and manager for Training & Business Servicing Processing Operations on Wolters Kluwer’s Advisory Services team. She has been with the firm for over 15 years. She leads her team in a broad array of advisory services for HMDA and CRA data, including data management and submission services, as well as lending reports, maps, and analytics. [email protected]