Last week, the CFPB announced that it was taking action against two lenders for submitting incorrect mortgage loan information under HMDA. One institution was fined $425,000, and the other was fined $34,000.
The agency wasn’t subtle about its desire to use the announcement to call attention to the importance it places on accurate data submissions. The subhead to its press release announcing the fines was:
Bureau puts mortgage lenders on notice about integrity of mortgage information.
The news may have overshadowed a bulletin the agency released the same day, but an institution subject to HMDA would do well to not let CFPB Bulletin 2013-11 go unnoticed, because the agency has announced that HMDA data integrity reviews are scheduled to begin on or after January 18, 2014.
Here are the key elements of the bulletin.
1. HMDA Compliance Management. The bulletin calls on mortgage lenders to put in place, if they haven’t already, a compliance management system designed to ensure the accuracy of its HMDA submission. The agency recognizes that the specifics of that system will vary in complexity based on the needs of the institution, but it does spell out some of the hallmarks it would expect to see in an effective HMDA compliance management system, including:
- Policies, procedures and internal controls to ensure HMDA compliance.
- Internal, pre-submission HMDA audits to test for data accuracy, with written reports detailing findings.
- Reviews of regulatory changes to keep current on HMDA requirements.
- Accountability through assigning one or more individuals to the various aspects of oversight and reporting.
- Sufficient employee training.
- Effective corrective action to address any previously identified deficiencies.
- Appropriate board and management oversight.
2. HMDA Resubmission Schedule. The agency describes two different thresholds for when financial institutions are required to resubmit their HMDA data due to error rates. The first is for institutions reporting under 100,000 mortgage loans. Such institutions would be expected to resubmit if its error rates exceeded 10% generally (in certain cases, when an error rate below 10% would prevent an accurate analysis of the institution’s lending, a lower threshold may be called for). The threshold is lower — 4% — for institutions reporting more than 100,000 entries.
3. Enforcement. The agency won’t necessarily limit the penalties for error-ridden submissions to the need to resubmit. It has indicated that it will consider public enforcement action, including civil money penalties, based on such factors as the institution’s size, the error rate, and whether the institution self-identified its errors and took corrective action.
AffirmX’s sister company, AdvisX, is available to assist you in your data validation efforts. Of course, the bulletin only addresses HMDA data integrity. Looking down the road, we can expect to see greater scrutiny of what the HMDA data show. A good first step toward understanding that is AdvisX’s HMDA Performance Overview Report. Click here for more information on that, as well as a sample of what such a report might include.