Top 5 HMDA Issues in 2022 HMDA Data Filing

Posted on by Kimberly Boatwright, CAMS, CRCM

HMDA Enforcement Actions in 2023…

The 2018 modifications to HMDA were massive and many financial institutions are still dealing with the challenges of collecting data under the burdensome requirements. These changes continue to prove to be cumbersome and taxing. Program failures continue to plague financial institutions and in 2023, there were three very large enforcement actions for failing to file accurate data.

Additionally, due to a lawsuit the CFPB had to rescind the 100 loan volume reporting thresholds for closed-end mortgages that were put into place as a result of the Economic Growth, Regulatory Relief and Consumer Protection Act (EGRRCPA). For which, the CFPB estimated the change to a 25-loan volume threshold would affect roughly 1700 financial institutions.

We all know that bad data in = bad data out. “Getting it right” can be a massive undertaking as proven by the CMPs (civil monetary penalty) against:

So, how do we navigate the complexity of HMDA reporting? We learn! Between enforcement actions and annual insights from the FFIEC and the CFPB there are many tools available to aid your institution in reporting HMDA Data accurately.

Every year, the CFPB updates and releases:

In addition, the FFIEC website contains other resources to aid in the filing of accurate data:

But sometimes, these resources aren’t enough. That’s why understanding the prior year’s issues is valuable to your organization.

 

Breaking down the Top 5 Data Errors in the 2022 Data…

The majority of 2022 violations involve failure to properly collect and report the HMDA data fields for “covered loans”4 as §1003.4(a) of Regulation C requires.

  1. Loan Purpose – Specifically when the purpose was a refinancing or a cash-out refinancing.
    • The challenge often times is because of a multi-purpose loan. HMDA states in a multi-purpose loan, the purpose of the covered loan is reported based on the hierarchy. The hierarchy for reporting is as follows:
      • Home purchase
      • Refinance
      • Cash-out refinance
      • Home improvement
      • Other

An example would be a covered loan is considered a refinance and utilized for home improvements would be reported as a refinance and reported as a home improvement.

    • When the transaction is a “cash-out” refinance, the institution is to define the term cash out in their policy, procedures, or using investor standards. It could be based off the amount of cash received by the borrower at closing or account opening. However, the institution has to designated a cash-out in processing the application or setting the terms of the loan.
  1. Credit Score – Reporting the credit reporting agency, such as TransUnion, when the regulation requires the institution to specifically identify the name and version of the scoring model used to generate each credit score.
  2. Discount Points and Lender Credits – These errors reflect the same issue in the examination. Both of these errors appeared to be a result of staff manually entering data. The fields reported did not match what was reported either on the Loan Estimate (LE) or the Closing Disclosure (CD)
  3. Business or Commercial Purpose:
    • If a covered loan primarily is for a business or commercial purpose is a home purchase loan, home improvement loan, or a refinancing the financial institution has to report the applicable loan purpose.
    • If a loan primarily is for a business or commercial purpose but is not a home purchase loan, home improvement loan, or a refinancing, the loan is an excluded transaction.
  1. Borrower Information: HMDA requires the following information to be collected on the borrower or applicant:
    • Ethnicity, race, and sex, and whether this information was collected on the basis of visual observation or surname,
    • Age; and
    • Except for covered loans or applications for which the credit decision did not consider or would not have considered income, the gross annual income relied on in making the credit decision or, if a credit decision was not made, the gross annual income relied on in processing the application.

The biggest error in the 2022 data was not properly reporting Gross Annual Income. Institutions have been cited for reporting the gross income the borrower provided rather than the income the institution relied upon in the credit decision.

 

Taking a Closer Look…

Now that you understand the top five issues in the 2022 data, let’s talk about the issues in two of the three enforcement actions this year.
Both institutions were cited for not properly capturing or reporting the ethnicity, race, and sex. However, they were cited differently.

In the case of Freedom, their loan officers were told by management and other officers to report applicants and borrowers as “white” if the information wasn’t captured on the application. This is clearly false data.

With BOA, their officers would mark the information “I do not wish to provide” if it was missing. In some cases, the loan officers were caught not asking the questions and not reading the HMDA disclosure statement to the applicants while on the phone.

Both of these enforcement actions reveal clear violations of the regulation, but the issues cited in BOA’s have been a widespread issue across the industry since the inception of the HMDA in 1975. Whether it comes down to inadequate training or being uncomfortable with the questions, not asking for the information during the application process is a violation.

Your FI’s lenders, staff, and supporting source materials are the keys to HMDA reporting success. It is critical that institutions have policies, procedures, and solid foundation of training to support collection and compliance initiatives. To help with that work effort, we have two upcoming sessions on HMDA which may be useful to you.

If you have any questions, or would like additional clarification, get in touch with us at support@mycomplianceresource.com.