HMDA: Why Its Important to Get It Right

Join Mark Trico as he shares with you the insider's view on passing your exam with flying colors. The With Flying Colors Podcast is sponsored by Credit Union Exam Solutions by Mark Trico. If you would like to work directly with the Credit Union Exam Solutions team and receive support to optimize your results with NCUA, so you save time and money, visit us@marktrico.com to find out more. Hey, everyone, Mark Treichel here again with another edition of With Flying Colors.

I'm thrilled today to be joined by Joe Goldberg. Joe, how are you doing this morning? Doing well, Mark. Thank you for having me. You got it. You got it. Well, Joe, for those people who may have missed your first episode, could you give us a little bit of a bio on yourself, if you will, on what you've done in the financial industry?

Sure, well, I retired this past December 31st from NCUA after 8 years doing consumer compliance work that includes fair lending and the Home Mortgage Disclosure Act, which we're going to talk about today. I've been a lawyer for over 40 years. I've taught consumer law, just done a variety of things in the legal field, including the financial regulation. Very good. Well, I'm thrilled to have you as a guest today.

And as you mentioned, we're going to talk about the Home Mortgage Disclosure Act, also known as HMDA. And so to start us off, maybe you can give us a little bit of a basic background on HMDA. Sure, sure. That's my intent is to really cover the basics and provide an overview of the law. Honda is a very highly detailed area, so I'm going to talk about resources that you can use to jump into some of those details. If your credit union is required to comply with Honda.

To start off, if I would ask listeners, what is HMDA? I'm guessing a lot of them would say, HMDA is a pain in the rear end or it's something the government created because they think credit unions have nothing better to do with their time. But after overseeing the NCUA's HMDA program, I, you know, I get that. But, you know, even criteria for if you're covered by changes year to year. So it's difficult in that respect, but it does have a noble purpose.

When I talk about consumer laws, I like to start with why they were created for Congress made that very easy because it put that right in the law itself. So here's what HMDA says about itself. First is the findings of Congress.

This is a quote from the law itself that Congress finds that some depository institutions have sometimes contributed to the decline of certain geographic areas by their failure pursuant to their chartering responsibilities to provide adequate home financing to qualified applicants on reasonable terms and conditions. Uh, that was the findings of Congress and it goes on to the actual purpose of HMDA and that is this.

The purpose of this law is to provide the citizens and public officials of the United States With sufficient information to enable them to determine whether depository institutions are filling their obligations to serve the housing needs of the communities and neighborhoods in which they are located and to assist public officials in their determination of the distribution of public sector investments in a manner designed to improve the private investment environment.

So, that tells you why HMDA was created. It has to do with the housing issues that actually still are prevalent in our country now, but it's to help offset some of those problems. HMDA goes back to 1975, which is when it was enacted. And so, as a result of that, we actually have mortgage data, good mortgage data, going back for over 45 years. So, how does this kind of work? What's it intended to do?

If the NCUA has a fair lending guide on its website that's available to the public, it has a good description of HMDA. It says that HMDA was implemented by Regulation C, as in CAT, requires financial institutions, including credit unions, To compile and disclose data about home purchase loans, home improvement loans and refinancing that they originate or purchase or for which they receive applications. And the purpose, according to the manual is to provide the public with data.

That can be used to help determine whether credit unions are serving the housing needs of their communities to assist public officials and distributing public sector investments to attract private investment to areas where it's needed and. Maybe most important to assist in identifying possible discriminatory lending patterns and enforcing compliance with anti discrimination statutes. So that's the general background on hum.

And we should probably take a look now at what it covers who has to collect and file the data. What data must have be collected and filed how and when it's supposed to be filed. Yeah, there's a lot there. You're a lot there. And so you mentioned the fair lending guide for the listeners. We'll have a link in the show notes where you can find that. And so, Joe, some of the questions you pose that we needed to ask. So, who is it credit union wise that. Must report and collect come to data in 2022.

And maybe if you could also, I'll do it, make it into a 2 parter. You said it who's covered changes every year. So who's covered in 2022? and how do the changes work? All right, well, let's start with the criteria for 2022 and these are 4 criteria, all of which. a credit union must meet in order to be required to file. So if you do one of the four, three of the four, you're not required, you have to meet all four of these requirements.

So the first one is what's referred to as an asset size threshold. That changes annually, but for 2022, a credit union meets the asset size threshold if the total assets as of December 31, 2021, exceeded 50 million. So that's the first thing if you're over, if you're under 50 million and. Close the book, go home. You don't have to worry about it. But if you are over 50 million dollars in assets, then you'd look to the 2nd criteria, which is called the location test.

And that is that the credit union. Also, in 2021, or as of the end of the year, 2021 had a home or branch office in a metropolitan statistical area. That includes a branch office or any location where accounts are established or loans are made. But are not included now, how do you find that out? Some of the resources that I'm going to point you to, and that, as Mark said, you'll have made available to you after you listen to this. They tell you how to determine.

If the credit union is in a metropolitan statistical area. So, again, the credit union meets these 1st, 2 criteria, you move on to the 3rd prong of this, which is loan activity test. So, if the credit union originated at least. 1 home purchase loan, and that's excluding temporary financing, like a construction loan that doesn't count. So it's 1 home purchase loan or refinanced. A home purchase loan secured by a 1st, lean on a 1 to 4 unit dwelling during 2021.

And then finally, if you meet all 3 of those requirements, the last 1 is the loan volume threshold. So, if the credit union originated at least. 100 covered closed and mortgage loans in each of the 2. Proceeding calendar years. And those would be 20 and 2020 and 2021 or at least 200 covered open end lines of credit that are home equity loans again in each of the 2 preceding calendar years, 2020 or 2020 and 2021. Excuse me.

So if you meet all four of those criteria, you are required to collect and submit HUDA data for 2022. Question is, well, so, so let me, let me Sure. Um, kind of just make a observational comment on that. So I have a, a relationship with a QSO that helps generate loans. However, the credit union, as part of that, gives the qso, you know, their. Matrix on how they're going to decide the credit decision, and it's it fits the credit unions policy under that scenario.

It would be the credit union who would submit it because again, they're making the credit decision. That's interesting. I didn't realize that. Yeah, there's some cities to that, such as if the credit union does. Give up its right to refuse. It may be relying on the QC. The QC may be the one. I mean, it's not, it's not an easy thing to characterize because again, a lot of little details that you have to look at to make sure you're in compliance. It comes down to that.

It comes down to that important legal word. Well, it depends, right? Yeah. So it depends on the facts of each situation. Got it. Okay. That's helpful too. Exactly. All right, so you want to know what the, what is the data that the credit unions need to collect if they are required to. So, it's data that comes from applications and consummated loans, and it's data that includes demographic information about applicants and details about the loans themselves.

I'm not going to get into what they are, but there are 48 data points that must be collected. And of course, since nothing is easy, some of those data points have multiple data fields within them, too. Some of the things that are covered or that must be collected are loan type, Loan purpose, loan amount, action taken on the application, property address, and rate spread. Other items include ethnicity, race, sex, age, income, and credit score.

Now, some of this demographic data is collected via the Universal Residential Loan Application. Which is widely used in the mortgage industry, especially by lenders who sell their mortgage loans. Fannie and Freddie use those applications. So, generally speaking, they're used. By most lenders got it. So Joe, you mentioned all these different items and data sets that must be collected.

Are there any exemptions that would either limit those the items that need to be collected or any exemptions that would impact credit unions in in any particular way? Other than that, because this is under the answers. Yes, there are some exemptions important to know. There are actually 2 separate partial exemptions, and they relieve some of the filers from having to submit all 48 data points. Generally, they're only required to submit 22 of them if they are subject to the partial exemption.

And not the other 26 data points. So the first partial exemption is for closed end transactions only. So if the credit union originated fewer than 500 covered closed end mortgages in each of the two preceding calendar years. It only has to report the 22 data points for closed end transactions. Now, that doesn't affect reporting for the opened end transactions. However, there is a separate partial exemption for opened end transactions. So, it's basically the same as.

The partial exemption for closed end transactions or the standards are the same. If the credit union originated less than 500 opened end transactions that are subject to the reporting for the opened end transactions is only for the 22 data points. And, of course, that does not affect the reporting for the closed end transactions. So there's separate exemptions. Even though the standards for each is the same. Interesting.

Now, if the credit union is required to collect and report data, it must record it in what's called a loan application register or LAR, L A R, you'll hear that term in connection with HMDA, and there is a requirement that the financial institution subject to HMDA update The law are within 30 days of the end of each calendar quarter. So, for example, for this year, we're coming on the, um, what's today when we're recording this is close to the end of April.

So, very soon, the alarm must contain all the transaction data for January, February and March of 2022. Now, except for some very large institutions, I think there might be just a couple of credit unions that fall in that category. That data is only collected and the law is being updated and it's internal. It's not being reported until the end of the. There are to the next, the reporting date of March 1, 2023. there is a requirement that every quarter larvae updated.

And just so you're aware, the database to which the data is submitted will accept if they are kept format that's compatible with the database. So, that actually compiling on a quarterly basis is a help because it makes it much easier to report the annual data when that. Annual data is due. It's like, uh, reconciling your bank account once a month or once a year. Exactly.

So I just going to say that I just want to reiterate that the actual submission is March 1st in the year following the calendar year that the day is collected in. So, March of 2022, they would have collected. 2021. Correct. Got it. Right. So, exactly. And the data that's being collected now in 2022 will be reported in 2023. So, technically, the data is submitted to the financial regulator. So, for all federally insured credit unions. That includes state charters that are federally insured.

That data is being submitted to NCUA, however, it is submitted to a database that is maintained by the CFPB, and you can actually submit it through the FFIE C'S website. The F-F-I-E-C is a Federal Financial Institutions Examination Council, but technically the data is being submitted to the regulator, so it's being, for credit union, it's being submitted to the NCA. The CFPB takes the data and provides it to each of the federal regulators.

So once each of the federal regulator gets it and it's been reported, what do they do with it? So NCOA has it. You said the CFPB has it. I think they share it with a couple other agencies like HUD and DOJ. Could you explain now that that is in the domain of these federal agencies, what happens with it? Sure. Well, This credit union data includes all the data that is submitted. Some of that data has some identifiers in it.

So, that is non public data to protect the privacy of the individuals whose transactions are being reported, but will get the data and the agency uses it and developing its fair lending program and it's different ways that we'll look at the data to look to For compliance for the industry as a whole, but also then to look for specific credit unions to see if there are some sort of outliers in the data that raise a question, not necessarily a red flag, but just a question, because sometimes

outlier type data is there's a perfectly reasonable explanation for it. It's not a violation, but sometimes it can become a red flag that there might be some issue with the quality of the data. Now, the data is is available to the public, although the data points that have identifier information in them are not available to the public for privacy purposes. I said, so I think they call that personally identifiable information that stripped out in the public versions. Correct. Right.

And in addition to the individual regulators, getting the data for their regulated institutions, other agencies will get it. HUD gets the data to use for its programs. CFPB can look at it for national trends and actually CFPB every year will release the results of its analysis. Of all the data and compare if it's a previous years. Excellent. Interesting.

So how would you, if you were running a credit union or suggesting to a credit union on how they could use their home, the data, either as it relates to their institution and or in comparison to, you know, for example, that CFPB report, where they they're showing the trends that happened last year. What would you recommend a credit union do with their own data? Well, yeah, the data is very useful for an individual institution.

It can look at it to see how well it is serving its members and the community, and it can lead to ways to improve the fair lending program. The credit union can compare how it is performing, you know, with a similarly sized institutions in its geographic area, whether they be credit unions or banks or non depository lenders.

And depending on the, The size of the mortgage lending operation, it might even be worthwhile for the credit union to consider getting software that does more sophisticated analyses of the data. There's a number of different programs out there. Just for everybody's information, the uses a program called lending patterns. It's sold by a company called compliance tech. Yeah, I'm not necessarily recommending that or advocating for it, but the benefit of using.

That is that it's the same software that your regulator is using. So, in theory, you should be getting the same results when you do any kind of analysis using that program. That's good to know. I think our listeners will appreciate that. You pointed that resource out and the fact that utilizes them would have to be viewed it in my mind as a positive, because it's almost a running head. Start. And again, that's that's not an endorsement either, but I think there's some value to that. Obviously.

So, Joe, if, um. We just passed April 15th or April 18th, which was the IRS tax filing date and government loves their deadlines so that people put their information in on time. And if a credit union were to miss a filing deadline, what happens? 1st, thing is, it should do whatever it can to get the information filed because late filing is a violation of Honda, but also not filing is a violation of Honda. However, not filing is far more serious violation than late filing.

So. The best thing to do is file it. The N. C. U. A. will contact those who filed late each year and recommend that they make efforts in subsequent years not to do that. Generally speaking, the N. C. U. A. will wait for several violations before taking any action. But the bottom line is. Even if you're late, file the data. Got it. And as you mentioned, NCUA can't assess civil money penalties.

They use that very carefully before they consider that, whether you have to be a multiple time late person or late credit union. It's not, it's civil money penalties. It's not something NCUA throws around willy nilly, but it is there to ensure bad actors do comply with the law. So, we've mentioned some resources. Are there any other resources that you, you want to highlight or any that you would like to re, highlight here as we get closer to the end of our show today?

Sure. Well, the 1st thing is, I direct everybody to the regulatory alerts. I hope everybody gets those sent to them as they're issued, but every year, the issues to regulatory alerts on near the beginning of the year. I believe. This year they went out the first week of February. One, uh, reminds credit unions who are subject to HMDA to report the previous year's data. So this year's would have talked about 2021's data.

And the other provides the standards and the requirements for collecting and reporting 2022 data. So they kind of get both ends of the spectrum with those regulatory alerts. So they, they provide. More detailed information that I've discussed, and they also have links to some of the important references, which I'm going to talk about now. I did mention the F. F. I. E. C. S. website. That's F. F. Well, excuse me. W. W. W. dot.

It has a number of hum to references, and it actually has a breakdown by year. If there's any issues with previous years, probably the most important resource on that website is what's called the getting it right guide.

Some people refer to it by its acronym, which is GERG, which I think is kind of a awkward word, but the getting it right guide really is almost 1 stop shopping because it goes over pretty much every detail and how you can imagine it has charts on who is required to comply what date is being collected what date is subject to the. Partial exemptions we discussed doesn't have to be submitted. It really does have a lot of.

Of individual resources within it, and then finally, the consumer financial protection bureaus website, which is consumer finance dot Gov. If you can find the compliance resources there, there is 1 for hum. And it also has a lot of different resources.

Very good, Joe. So before we wrap up here, are there any sanitized examples of situations that you recall from your time in charge of this program where you saw that a credit union failed to do what it needed to do and how that might have impacted the credit union relative to their examination and or, you know, the, the steps that that credit union had to take to get back within the confines of the law. Anything jump into your head. Well, a couple of things.

There often are times where the data in the, the LAR is not accurate. So, what gets submitted to the website is not accurate. There actually are standards established by NCUA so that there's a threshold. A few minor errors, pretty much nothing happens. We just requested that the credit unions may fix, fix the errors internally. But if the errors exceed a certain threshold, the NCUA will require the credit union to not only correct the errors, but to resubmit the data.

It's not an area where civil money penalties are contemplated as long as the credit union does comply with the requirement to resubmit the data. On occasion, there are instances where the data indicates a lack of compliance with some fair lending laws that can be the basis for the N. C. U. A. putting a credit union on the list for a fair lending exam, or if it's discovered during a fair lending exam, it can require credit union changes, policies and procedures so that it is complying with.

The equal credit opportunity act or some other fair lending law. And in those scenarios, the credit union could receive a document resolution or an examiner finding requiring action on their part. That would be in discussions with the people who are the fair lending examiners that you used to supervise. Do I have that right? Yeah, that's correct.

The Fair Lending Program uses the same type of standards and the same type of tools that are used for the exams by the regional offices, the standard exams. Got it. Very good. So, Joe, any final thoughts on this topic before we wrap up for the day?

I just think it's important for credit unions to understand, though, that even though complying with HMDA can be a chore, that there is a valid reason for collecting the HMDA data, and that is to try and ensure that mortgage credit is offered and extended to everybody based on mortgage related criteria. Yeah, to prevent discrimination to help prevent redlining. So, you know, if you approach complying with Honda from that angle, I think you can see why it has to be done.

It's a benefit for the members and it's a benefit to the economy as a whole. Sure, Joe, that's a, that's a great place to wrap. I want to, Joe, I want to thank you for your time today and to the audience. I want to thank you for your time and for listening. Hopefully we'll see you next time. And until next time, this is Mark Treichel with Flying Colors. Thank you for joining us on this episode of with Flying Colors.

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