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HMDA: With great change comes great responsibility

Posted: November 28, 2017

The HMDA (Home Mortgage Disclosure Act) deadline looms ever closer and lenders need to be preparing for the new reporting requirements. With significant changes taking effect in January 2018 - just a matter of weeks away - there’s no time like the present to get the ball rolling.

A brief history of HMDA

HMDA was enacted by Congress in 1975, following concerns that credit shortages in certain urban neighborhoods had led to decline, caused by a failure from certain financial institutions to provide adequate home financing to qualified applicants on reasonable terms and conditions.

HMDA, therefore, exists to fulfil three key purposes:

  1. Provide the public with information around whether financial institutions are serving the housing credit needs of local neighborhoods and communities.
  2. Aid public officials in targeting public investments from the private sector to areas where they are most needed.
  3. Identifying discriminatory lending patterns and enforcing anti-discrimination statutes.

In October 2015, HMDA took a change in direction, as financial institutions were informed that important updates would be made to the act; namely, changes to the types of transactions covered, and a significantly expanded data collection process.

The intention of these changes is to improve the quality and type of HMDA data being collected. A key benefit for lenders is that the updated system will allow for greater insight than ever before on their lending practices. The downside is that as more information becomes publicly available, the potential for scrutiny and liability within the industry also increases.

Once the filing period officially opens on January 1, 2018, lenders and other financial institutions will have until March 1, 2018 to submit data for the previous calendar year. But, as HousingWire advises. “the industry shouldn’t wait until then to care.”

In a recent webinar panelled by a number of senior Ellie Mae officials, it was advised that the industry needs to be going through the motions now, so that when the deadline comes around they are familiar with the new processes. Panelists listed the following ways the industry can prepare:

Making sure your loan origination system (LOS) is working

  • Training people
  • Testing your solution
  • Sticking with your process for scrubbing the data

One panelist stated,“If you’re trying to build the ship after it sailed, it’s highly likely that you’re going to get slammed.”

The webinar also warned that lenders shouldn't rely wholly on technology in their mission to become HMDA compliant. While it was acknowledged that technology makes the transition easier,  it’s also important to answer what the technology does, so that any gaps that automated systems do not pick up can be identified and answered for.

Getting to know the new HMDA Platform

To help with the transition to the new HMDA rules, the Consumer Financial Protection Bureau (CFPB) has created a HMDA Platform, that allows financial institutions to upload test data in a safe environment. All test data uploaded and accounts created during the beta period will be removed from the system when the filing period for HMDA data collected in 2017 opens on January 1st.

A HMDA File Format Verification Tool is also available at https://cfpb.github.io/hmda-platform-tools/file-format-verification/. This tool will conduct some of the same initial checks that the HMDA Platform performs, and provide a convenient test mechanism for filers.

For more information about HMDA and to keep up with all the latest announcements, visit https://www.consumerfinance.gov/data-research/hmda/learn-more

Watch this short video about HMDA created by the CFPB:  https://www.youtube.com/watch?time_continue=19&v=wR9Tsdqgmuk

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