ABA Bank Compliance - July/August 2019

On March 29, 2019, the Consumer Financial Protection Bureau (CFPB) issued a press release stating that modified HMDA Loan Application Register (LAR) data were being published for approximately 5,400 HMDA-reporting lenders.

This new data was eagerly anticipated by
the press and certain community groups
due to the vastly expanded amount of in-
formation reported by lenders beginning
in 2018. Regulators are very interested
as well, as demonstrated by the CFPB in
its press release, “The CFPB anticipates
applying particular rigor and analysis to
address data anomalies, including in the
new data points.”
How comfortable are you in knowing
what your data says about your bank?

Many banks have been so concerned
about the technical aspects of figuring out
how to comply with the new data require-
ments (i.e. where do we even get that da-
ta? How can we get it submission-ready?),
they just didn’t have the time (or chose
not to take the time) to do any sort of data
analytics. But this is a risky omission—
with so much more information at the
public’s (and your regulator’s) disposal,
the industry as a whole can expect great
attention to be paid to what that data says
both about the industry as a whole, as
well as individual banks. Disparities can
always be found in the data, but with so
much more data to test, more dispari-
ties will become apparent. Do disparities
equal illegal discrimination? The answer
is no, but they can be indicators of where
questionable practices exist, and that
equals fair lending risk. Banks must be
ready to tell their own story to the public,
to the press, and to their regulators.

Isn’t Merely Trying
Good Enough?

But the real standard for submitting the

2018 data was merely a “good faith effort to comply,” right? After all, the CFPB and Office of the Comptroller of the Currency (OCC) previously stated they would not require resubmission unless there were “material errors” (but note the term “material” was not defined).

The CFPB noted that institutions should focus 2018 data collection on identifying area for improvement in future years, and it acknowledged “the significant changes and operational challenges” to comply with the expanded rule. It brings back memories of implementing the Reg. Z TILA-RESPA Integrated Disclosures (TRID) rule a few years ago.

The agencies conducted their first TRID exams with a light touch, essentially looking for a “good faith effort to comply” rather than demanding 100% technical accuracy. Isn’t this the same?

Not necessarily. For one thing, only
the CFPB and OCC had anything to say
publicly about the issue. The Federal Re-
serve and FDIC were not parties to those
statements so it was not a unified, inter-
agency opinion. Second, the CFPB and
OCC didn’t say they’d ignore errors in the
data; they just stated they’d not mandate a
resubmission or require payment of pen-
alties unless the problems were serious. So
this was clearly not a blanket statement al-
lowing for less attention on data integrity.
But third, and most importantly,
do you want your bank’s public face of
mortgage lending practices to be based
on erroneous data? Understand again
the attention HMDA will be receiving
now that the first set of expanded data is
publicly available. Are you comfortable
with the press, community groups, your
regulators, or anyone else crunching
your data and asking pointed questions
about your bank’s mortgage lending
practices when those questions are based
on faulty data? How would you respond
to those questions? Imagine saying the
following: “Don’t pay attention to that
data. We know it’s wrong but it’s okay,
since our regulator didn’t really hold
us to a high data integrity standard last
year.” How would that play? Not a good
answer, and when referring to regulators
not minding, it’s not accurate either. Plus
you still haven’t addressed the fair lend-
ing question.

Understand Who
Can Get Your LAR

The reality now is anyone can obtain your HMDA data. While that was always the case, now anyone with access to the internet can obtain it quickly and easily rather than requesting it from your bank. One of the many amendments to HMDA (along with the new data) changed how banks’ HMDA data are accessed by the public. Prior to 2017, a request had to be made to the bank directly, which would then provide the data as the regulation required. But now, HMDA data for 2017 and forward is readily available on an FFIEC website. Two things are important here:

1. Each bank’s data is provided in a consistent, standardized format (this did not use to be the case; banks were free to provide the data in any format