The Federal Financial Institutions Examination Council (FFIEC) has released guidelines for examiners charged with testing for compliance with Home Mortgage Disclosure Act (HMDA) reporting requirements.
The FFIEC HMDA Examiner Transaction Testing Guidelines will be applied during examinations of all entities required to report HMDA data and, therefore, must begin implementing updated HMDA requirements for data collection, beginning Jan. 1, 2018, and data reporting, beginning Jan. 1, 2019.
The guidelines will be used to verify accuracy within a random sample of transactions an institution reports in the HMDA Loan Application Register (LAR). If the number of errors examiners find in a given sample exceeds certain thresholds, which are different depending on whether the sample represents an “initial sample size” or a “total sample size,” the institution will be directed to correct and possibly resubmit its HMDA data. The size of the sample and the resubmission threshold depend on the number of entries in a company’s HMDA LAR. The guidelines include a table, which breaks down the HMDA LAR sizes and corresponding resubmission thresholds, as well as several examples of how examiners will evaluate various sample sizes.
“HMDA transaction testing can be divided into two stages,” the guidelines state. “Both stages test for errors only in individual data fields that are selected for review. … In stage 1, examiners review only a subset of the sample (initial sample). The size of the initial sample will depend on the size of the financial institution’s HMDA LAR. … If the number of errors identified in the initial sample falls below the initial sample threshold ... for each and every data field reviewed, no further sample review is required and the examiners may conclude the transaction testing. If the number of errors in any data field reviewed equals or exceeds the initial sample threshold …, examiners should proceed to stage 2 and review the remainder of the total sample. In stage 2, examiners must review all data fields that had one or more errors in the initial sample and may review any or all initial sample data fields reviewed and found to have no errors in stage 1.”
The guidelines also detail tolerances examiners are to consider when determining when the number of errors equals or exceeds the initial sample threshold or the resubmission threshold. Per the guidelines, examiners are not to count the following differences between data in the HMDA LAR and in the loan files as errors:
- “Three calendar days or less in the date the application was received or the date shown on the application form reported;
- One thousand dollars or less in the amount of the covered loan or the amount applied for, as applicable, reported;
- Three calendar days or less in the date of the action taken by the financial institution reported, provided that such differences do not result in reporting data for the wrong calendar year; and
- Rounding errors in reporting the dollar amount, rounded to the nearest thousand, of 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.”
Regarding information on consumers’ ethnicity or race, the guidelines refer to the HMDA Filing Instructions Guide (FIG) data fields, each of which consists of a distinct data field number and data field name. The guidelines state that “with respect to information on the ethnicity or race of an applicant or borrower, or co-applicant or co-borrower, a data field consists of a group of FIG fields as follows:
- “The ethnicity of applicant or borrower data field group — comprised of six FIG fields with information on an applicant’s or borrower’s ethnicity (FIG data field numbers 19-24);
- The ethnicity of co-applicant or co-borrower data field group — comprised of six FIG fields with information on a co-applicant’s or co-borrower’s ethnicity (FIG data field numbers 25-30);
- The race of applicant or borrower data field group — comprised of eight FIG fields with information on an applicant’s or borrower’s race (FIG data field numbers 33-40); and
- The race of co-applicant or co-borrower data field group — comprised of eight FIG fields with information on a co-applicant’s or co-borrower’s race (FIG data field numbers 41-48).”
The Consumer Financial Protection Bureau (CFPB) highlighted key details for compliance staff to know about the new guidelines in a blog post. The bureau wrote, in regards to the new HMDA reporting data fields that will be required beginning in 2018, that the guidelines:
- “Eliminate the file error resubmission threshold under which a financial institution would be directed to correct and resubmit its entire Loan Application Register (LAR) if the total number of sample files with one or more errors equaled or exceeded a certain threshold.
- Establish, for the purpose of counting errors toward the field error resubmission threshold, allowable tolerances for certain data fields.
- Provide a more lenient 10 percent field error resubmission threshold for financial institutions with LAR counts of 100 or less, many of which are community banks and credit unions.
- At the same time, the guidelines ensure HMDA data integrity by maintaining field error resubmission thresholds that safeguard the accuracy of each data field, and thus all data, reported under HMDA. Furthermore, under the guidelines, examiners may direct financial institutions to change their policies, procedures, audit processes or other aspects of its compliance management system to prevent the reoccurrence of errors.”