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HMDA (Home Mortgage Disclosure Act) What to Know Now & What’s Next? May 13, 2015Presented by:Susan Costonis, C.R.C.pliance Training & Consulting for Financial InstitutionsE-mail: susancostonis@INSTRUCTOR6223031115Susan Costonis is a compliance consultant and trainer. She specializes in compliance management along with deposit and lending regulatory training. Most of her 37-year career was spent as a banker in several areas including lending, loan administration, electronic banking, and compliance risk management. Susan has successfully managed compliance programs and exams for institutions that ranged from a community bank to large multi-state bank holding companies. She has been a compliance officer for institutions supervised by the OCC, FDIC, and Federal Reserve. Susan has been a Certified Regulatory Compliance Manager since 1998, completed the ABA Graduate Compliance School, and graduated from the University of Akron and the Graduate Banking School of the University of Colorado. She regularly presents to financial institution audiences in several states and “translates” complex regulations into simple concepts by using humor and real life examples. susancostonis@ (e-mail)TABLE OF CONTENTS TOC \h \z \t "SubChaptertitle,2,Chaptertitle,1" Session Overview and Key Requirements PAGEREF _Toc418689832 \h 4OVERVIEW PAGEREF _Toc418689833 \h 5HMDA HISTORY PAGEREF _Toc418689834 \h 7HMDA CHANGES PROPOSED PAGEREF _Toc418689835 \h 8HMDA NOW AND IN THE FUTURE PAGEREF _Toc418689836 \h 12PURPOSE AND COVERAGE PAGEREF _Toc418689837 \h 13HMDA FLOW CHART PAGEREF _Toc418689838 \h 14HMDA REPORTING BASICS PAGEREF _Toc418689839 \h 152014 AND 2015 REPORTING CRITERIA FOR DEPOSITORY INSTITUTIONS PAGEREF _Toc418689840 \h 16IMPORTANT HMDA DEFINITIONS PAGEREF _Toc418689841 \h 17HMDA DATA EXCLUSIONS PAGEREF _Toc418689842 \h 23HOW TO TELL WHETHER A LOAN IS HMDA REPORTABLE: PAGEREF _Toc418689843 \h 24Common Problems PAGEREF _Toc418689844 \h 25STEP-BY-STEP CONTROLS PAGEREF _Toc418689845 \h 26LIST OF HMDA PROBLEMS AND SOLUTIONS PAGEREF _Toc418689846 \h 30COMMON HMDA PROBLEMS FOUND IN INDEPENDENT AUDITS PAGEREF _Toc418689847 \h 32FDIC SUGGESTIONS TO PREVENT HMDA ERRORS PAGEREF _Toc418689848 \h 33FAIR LENDING AND HMDA PAGEREF _Toc418689849 \h 36HMDA DATA ANALYSIS PAGEREF _Toc418689850 \h 37Session Overview and Key Requirements OVERVIEW On July 24, 2014, the Consumer Financial Protection Bureau published long-awaited proposed revisions to its Home Mortgage Disclosure Act rules. The 573-page proposed rule would make sweeping changes to Regulation C, and dramatically expand financial HMDA reporting and compliance obligations. There are potential fair lending implications – more data means more analysis to detect potential discriminatory lending practices. The proposed changes include required reporting of 37 new data fields, 20 of which are not required by HMDA and represent additional information the CFPB would like to collect. The proposal would require financial institutions to report home equity lines of credit (HELOCs), reverse mortgages, and commercial loans secured by a dwelling. In addition, the proposal would require “larger” HMDA reporters to report data every calendar quarter, rather than on an annual basis. What do you need to know now? Attend this session to review the HMDA reporting requirements 2015 and learn practical tips for data collection and validation. What’s on the horizon? We’ll review the proposed rule to help prepare for the changes that will likely become effective in 2016. (UPDATE: As of the submission date of these materials a final rule has not been published. Under the requirements of Dodd-Frank, a nine month lead time was required for a January 1st implementation date. If the CFPB publishes a final rule this summer, the first possible effective date will require the new data collection requirements to begin January 1, 2017 HIGHLIGHTS:Overview of the HMDA requirements for 2015 activity, including:Who reports HMDA data?What types of loans are covered?What data is reported?When is the data reported? How is the data reported? How to properly report data of the 26 required fieldsCommon reporting mistakes and practical tips for managing the processBest practices for HMDA data validationWhat will the proposed rules change? More types of loans will be covered; the “purpose” test will be eliminated and cover nearly all dwelling-secured loans.Data reporting is dramatically increased in these categoriesBorrower Information and Underwriting Characteristics (age, credit score, debt to income ratio, combined loan-to-value, application channel, automated underwriting systemProperty data (Postal address and location; property value, number of dwelling units in the property, construction method, manufactured housing information, multi-family housing informationProduct Features ( points & fees, borrower-paid origination charges, discount points, non-discounted interest rate, interest rate, loan term, non-amortizing features, prepayment penalty, qualified mortgage, first draw informationIdentifiers (Universal Loan Identifier, Mortgage Loan Originator Identifier)Clarification and Revisions to Existing Data points include reporting the reasons for denial, occupancy type, lien priority, rate spread, HOEPA status, Loan Type, Loan amountTechnical changes and web-based data submissionPrivacy concerns about the public availability of the dataIncreased oversight will be required to prove that the data is accurate.BONUS – HMDA TOOLKITHMDA Worksheets & FlowchartComparison of the current rules to the proposed rules Step-by-step data collection definitions and important tips to avoid mistakes. Helpful HMDA compliance resources including checklists and a matrix of 37 types of real estate secured lending regulation requirementsHMDA HISTORYFor nearly 40 years, the Home Mortgage Disclosure Act (HMDA) has provided the public with information about mortgage lending activity within communities throughout the nation.?Here’s a brief timeline of HMDA's development:1975: HMDA was enacted by Congress, and was implemented by the Federal Reserve Board’s Regulation C.?HMDA originally identified its purposes as providing the public and public officials with information to help determine whether financial institutions are serving the housing needs of the communities 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.?1989: Congress expanded HMDA to require financial institutions to report racial characteristics, gender, and income information on applicants and borrowers, among other things. This effectively moved HMDA from aggregated-level reporting to transaction-level reporting. In light of these amendments, the Federal Reserve recognized a third HMDA purpose of identifying possible discriminatory lending patterns and enforcing anti-discrimination statutes.?2002: The Federal Reserve began requiring identification of higher priced mortgage loans, identification of manufactured homes, reporting of denials from pre-approved programs, and conformed data on ethnicity and race to standards established by the Office of Management and Budget (OMB). Despite the changes, HMDA was still criticized for offering only limited loan pricing variables and did not offer transparency into the subprime mortgage market.2010: Congress amended HMDA in the Dodd-Frank Act, which also transferred HMDA rule-making authority to the CFPB. Dodd-Frank expanded the scope HMDA with new data fields, including pricing information, value of property, loan term, credit scores, and more. Congress also gave the CFPB the authority to include additional data fields in order to “increase the level of transparency in the mortgage market” and to “reflect in business practices of the mortgage market.”2014: The CFPB announces a proposed rule that contains the Dodd-Frank requirements and many additional reporting changes. In the years since HMDA was originally enacted, it has shifted from being a statue aimed at monitoring and redlining prevention to one widely used by the regulators as a Fair Lending tool. With the new proposed changes, it appears this trajectory will continue.HMDA CHANGES PROPOSEDA copy of the 573 page proposed rule, which includes information on how to submit comments, is available at: A copy of the final report of the Small Business Review Panel is available at: Link to July 25, 2014 announcement: July 25, 2014, the CFPB announced proposed changes to Regulation C (12 CFR Part 1003), which implements the Home Mortgage Disclosure Act. The proposal is intended to provide better information about residential mortgage credit by expanding the list of data that financial institutions are required to provide, including new information that could help identify potential discriminatory lending practices. It is also expected to provide additional information to help regulators monitor access to creditRULE OF 25:?There will be new thresholds for both banks and mortgage companies. This was not aligned in the past – mortgage companies had a 100+ threshold and the depository institutions threshold was at one. ?The CFPB states that this will reduce the overall number of banks required to report HMDA data by 25 percent.TYPES OF TRANSACTIONS:?New types of transactions, like reverse mortgages and home equity lines, will be included because the “purpose test” is effectively eliminated. Going forward, institutions will report all closed-end loans, open-end lines of credit, and reverse mortgages.?Unsecured home improvement loans would no longer be reported. Open-end lines of credit and reverse mortgage loans would also have unique identifiers and characteristics to clarify reporting.ALIGN DATA REQUIREMENTS:?The new rule proposal aligns HMDA data requirements with the Mortgage Industry Standard Maintenance Organization (MISMO) data standards for residential mortgages. MISMO, a wholly owned non-profit subsidiary of the Mortgage Bankers Association, has developed an extensive set of data standards for electronic delivery of loan-level mortgage data. “The Bureau believes that grounding HMDA in the common vocabulary and data standards of the industry will continue to reduce burdens should the need arise to modify Regulation C in the future,” according to the Bureau.NEW DATA POINTS REPORTED: Four new groups of data – some identified by the Dodd-Frank Act, others set forth by the Bureau - are being proposed, totaling almost 40 new data points.?The four new types of data are:? Information about applicants: Age, credit score, debt-to-income, reasons for denial, application channel, automated underwriting system results?Information about property: Construction method, property value, lien priority, number of individual dwelling units in the property, additional information about manufactured and multifamily housing?Loan features: Additional pricing information, loan term, interest rate, introductory rate period, non-amortizing features, and the type of loan?Certain unique identifiers: Loan identifier, property address, loan originator identifier, a legal entity identifier for the financial institution?MODIFICATIONS TO DISCLOSURE AND REPORTING REQUIREMENTS: Large financial institutions will have to formally submit their data quarterly, rather than annually. The Bureau is also proposing that the HMDA disclosure of data be available on a public website, versus available at the financial institution.CLARIFY THE REGULATION: Some examples to clarify guidance on HMDA reporting include: types of residential structures are considered dwellings; treatment of manufactured and modular homes; treatment of multiple properties; coverage of pre-approval programs and temporary financing; and reporting the action taken on an application.Concerns about PrivacyWith the additional data fields, many parties involved have expressed concerns about maintaining privacy.?Exposing a consumer’s age, property address, debt-to-income, credit score, and mortgage interest rate certainly is not acceptable. The Bureau will likely modify the LAR data that will be made available to the public in order to protect the privacy interests of individual applicants or borrowers, perhaps by deleting information like credit score and age.“The Bureau is mindful that privacy concerns may arise both when financial institutions compile and report the data to the Bureau and other agencies and when HMDA data are disclosed to the public,” according to the proposed rule. The Bureau is asking specifically for comments on how to address the potential risks of privacy interests created by the reporting of HMDA. In addition, the Bureau is considering various improvements to the HMDA data submission process, including advanced encryption.CFPB GOALS IN THE HMDA PROPOSALBETTER INFORMATION ABOUT THE MORTGAGE MARKET - This rule includes a number of new categories of data to be collected, including the property value, term of the loan, total points and fees, the duration of any teaser or introductory interest rates, and the applicant’s or borrower's age and credit score.MONITORING ACCESS TO CREDIT - In addition to market information, the CFPB is also using the proposed rule to gain data regarding access to credit. The rule would require financial institutions to provide more information about underwriting and pricing, such as an applicant's debt-to-income ratio, the interest rate of the loan, and the total discount points charged for the loan. The CFPB believes that such data would help the bureau observe how the ability-to-repay rule is impacting the market, and would also help the bureau monitor developments in specific markets such as multi-family housing, affordable housing and manufactured housing. The proposed rule would also require that lenders report, with some exceptions, all loans related to dwellings, including reverse mortgages and open-end lines of credit. However, unsecured home improvement loans would no longer need to be reported. STANDARDIZE THE REPORTING THRESHOLD - Depository institutions, such as banks, satisfying HMDA's general reporting requirements must submit HMDA data, even if they make only a single home-purchase loan or refinancing in a given year. However, non-depository mortgage lenders may be required to report only if they make at least 100 loans. The proposal would generally require that institutions report HMDA data if they make 25 or more closed-end loans or reverse mortgages in a year.EASE REPORTING REQUIREMENTS FOR SOME SMALL BANKS. With the proposed standardized reporting threshold, small depository institutions that have a low loan volume—fewer than 25 mortgages a year—would not have to report HMDA data. In announcing the proposed rule, the CFPB stated that in addition to more robust reporting, the proposed rule furthered the bureau's goals related to aligning reporting requirements with industry data standards.ALIGNING REPORTING REQUIREMENTS WITH INDUSTRY DATA STANDARDS. Using established industry data standards would mitigate the burden on lenders in providing the new data.IMPROVING THE ELECTRONIC REPORTING PROCESS. The CFPB is analyzing new technological tools to make the data submission process more efficient, ease the data formatting requirements and help financial institutions prevent errors.IMPROVING DATA ACCESS. Despite significant privacy concerns already being raised, the CFPB specifically stated that it is looking at ways to improve how the public can securely use HMDA data.SPECIFIC DATA FIELDS:Information about applicants, borrowers, and the underwriting process, such as age, credit score, debt-to-income ratio, reasons for denial if the application was denied, the application channel, and automated underwriting system rmation about the property securing the loan, such as construction method, property value, lien priority, the number of individual dwelling units in the property, and additional information about manufactured and multifamily rmation about the features of the loan, such as additional pricing information, loan term, interest rate, introductory rate period, non-amortizing features, and the type of loan.Certain unique identifiers, such as a universal loan identifier, property address, loan originator identifier, and a legal entity identifier for the financial institutionThere are approximately 60 fields of data on the proposed HMDA LAR Financial institutions with at least 75,000 reported transactions in the prior calendar will also be required to submit their data quarterly instead of annually. Reported transactions include covered loans, applications, and purchased covered loans.Finally, on a positive note, the CFPB proposes to add an instructions section to Appendix A and the Staff Commentary to Regulation C in order to address questions and concerns that have been raised by commenters over the years.WHEN WILL IT BECOME EFFECTIVE?The CFPB received 392 comments by the end of the comment period. They are reviewing the comments and may issue a final rule as early as the first quarter of 2015. The final rule should not become effective until January 2016, at the earliest. (UPDATE: As of the submission date of these materials a final rule has not been published. Under the requirements of Dodd-Frank, a nine month lead time was required for a January 1st implementation date. If the CFPB publishes a final rule this summer, the first possible effective date will require the new data collection requirements to begin January 1, 2017 The CFPB could also extend the implementation date until January 2017. This speaker contacted a staff attorney at the CFPB to ask if there was an estimated time for the final rule and implementation date. The attorney would not comment on a direct answer but said that the agency was sensitive to the requirements for required changes for software, procedures, training and system integration. The attorney anticipates that the CFPB will provide several implementation tools as they have done for the 2014 mortgage related changes and 2015 Integrated Disclosures. HMDA NOW AND IN THE FUTURECURRENT REPORTING REQUIREMENTS:Loan Application: Application number, date, type of loan and purpose and amount requested; Action Taken: the type of action taken and the date; optional reporting for denial reasons (required for OCC banks)Loan Information: rate spread for certain types of higher-priced loans; lien statusProperty Information: property type, owner/occupancy status, location by MSA, state, county (parish), census tract and;Applicant information: ethnicity, race, sex, and annual incomeThe 17 fields required by Dodd-Frank are:Total points and fees;Rate spread for all loans;“Riskier” loan features like prepayment penalties, teaser rates and negative amortization;Unique identifiers for the loan officer and the loan;Application channel (retail, broker, or other)Property value and more detailed property location information andThe borrower’s age and credit scoreAdditional fields proposed by the CFPB are:Debt-to-income ratioCombined loan-to-value ratioAutomated Underwriting System (AUS) used and the resultsDenial reason would be required for all reporters, not just the OCC bankQualified mortgage statusAdditional information on the rate; total points and fees;Additional property information (type of construction; affordable housing information)Manufactured housing data (does the applicant own the land?) andA unique financial institution identification number.The proposal hasn’t stipulated which fields will be removed from the LAR available to the public. There are significant privacy concerns because of the nature and depth of potential information that could be disclosed.The CFPB is considering other changes BEYOND this proposal that could include revamping the geocoding process and creating a web-based HMDA data entry software (DES) and options for streamlining submission and editing that would allow entries from multiple locations. PURPOSE AND COVERAGEOverviewThe Home Mortgage Disclosure Act (HMDA) was enacted by Congress in 1975 and was implemented through the Federal Reserve Board’s Regulation C (12 CFR Part 203). The Consumer Financial Protection Bureau (CFPB) assumed authority over this regulation under Title X of the Dodd-Frank Financial Reform Act and has reissued it as 12 CFR Chapter X Part 1003 — Home Mortgage Disclosure (Regulation C). Section 1003.1Authority, purpose, and scopeSection 1003.2Definitions. Section 1003.3Exempt institutions. Section 1003.4Compilation of loan data. Section 1003.5Disclosure and reporting. HMDA applies to a variety of both depository and non-depository institutions including banks, savings and loans, credit unions and mortgage companies. These institutions are required to report date relating to applications, preapprovals, originations and purchases of: home purchase loanshome improvement loans andrefinancingsThis data is reviewed in conjunction with The Equal Credit Opportunity Act (ECOA)/Regulation B, the Community Reinvestment ACT (CRA)/Regulation BB, and the Fair Housing Act by both regulators and the public.PurposeHMDA FLOW CHARTHMDA REPORTING BASICSWHO REPORTS HMDA DATA?Financial institutions will be required to report HMDA data if they meet the asset size threshold for a particular calendar year and have at least one location in a MSA (Metropolitan Statistical Area). The asset size changes annually. Check this link for the current information: is also a coverage threshold for the number of loans that were originated in the preceding calendar year for at least one purchase or refinance transaction secured by a 1-4 family residence and the institution is federally regulated.WHEN IS IT REPORTED?By March 1st for the prior year activityHOW IS IT REPORTED?Sent electronically to the FFIEC or by paperWHAT IS REPORTED?Twenty six data fields for each covered application WHAT TYPES OF LOANS ARE REPORTED? Three types of applications – home purchase, home improvement, refinancingWHAT IS OPTIONAL?Reporting denial reason is optional, except for OCC Banks; certain pre-approval codes are optional; home equity line of credit reporting is optionalDecember 29, 2014 WASHINGTON, D.C. — The Consumer Financial Protection Bureau (CFPB) today issued a final rule adjusting the asset-size exemption threshold for banks, savings associations, and credit unions under Regulation C, which implements the Home Mortgage Disclosure Act (HMDA).HMDA requires that the CFPB adjust this threshold yearly by the annual percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers. Based on the adjustments announced today, the asset-size exemption for banks, savings associations, and credit unions will increase to $44 million. As a result, these institutions with assets of $44 million or less as of December 31, 2014, are exempt from collecting HMDA data in 2015.HMDA and the CFPB’s Regulation C require most mortgage lenders located in metropolitan areas to collect, report, and disclose data about mortgage loan applications, originations, and purchases. The data cover home purchase loans, home improvement loans, and refinancings. Data reported include the type, purpose, and amount of the loan; the race, ethnicity, sex, and income of the loan applicant; the location of the property; and loan pricing information for some loans. HMDA data are used to help determine whether financial institutions are serving the housing needs of their communities and to assist in identifying possible discriminatory lending patterns. 2014 AND 2015 REPORTING CRITERIA FOR DEPOSITORY INSTITUTIONSUse information and data from the preceding December 31 date when determining whether you meet the reporting criteria. The following questions for a depository institution should be answered to determine if you should report CY 2011 HMDA data in 2014.*Is the depository institution a bank, credit union, or savings association?Did the assets of the institution total more than $43 million on the preceding December 31? Did the institution have a home or branch office in a metropolitan statistical area or metropolitan division (MSA/MD) on the preceding December 31? In the preceding calendar year, did the institution originate at least one home purchase loan or refinancing of a home purchase loan secured by a first lien on a one-to-four-family dwelling? Is the institution federally insured or regulated; or was the mortgage loan insured; guaranteed, or supplemented by a federal agency; or was the loan intended for sale to the Federal National Mortgage Association (FNMA) or Federal Home Loan Mortgage Corporation (FHLMC)?If a depository institution responds 'YES' to the above questions 1 through 4 and 'YES' to at least one question in 5, then HMDA applies to the institution's loan originations, purchases, and applications in the current calendar year. A negative response to any one of the first four questions or to all the questions in 5 would exempt the institution from filing HMDA.A negative response to any one of the first four questions or to all the questions in 5 would exempt the institution from filing HMDA. For depository institutions, a branch office is an office approved as a branch by a supervisory agency (except that a branch office of a credit union is any office where member accounts are established or loans are made, whether or not the office has been approved as a branch by a federal or state agency). A branch office does not include offices of affiliates or other third parties such as loan brokers, or other offices where loan applications are merely taken; nor does it include ATMs or other electronic terminals.*NOTE: The threshold was updated to $43 million announced by the CFPB on Dec 30, 2013The asset size for 2015 will probably be announced on December 30, 2014 but was not yet available at the time these materials were finalized. IMPORTANT HMDA DEFINITIONSDWELLING A “dwelling” is a residential structure whether or not it is attached to real property located in the U.S., District of Columbia or Puerto Rico. A dwelling includes:not only a principal residence but also a vacation home and rental properties, individual condo units, mobile home or manufactured home and “camps”multifamily structures like apartment buildingsA dwelling DOES NOT include RV’s and campers or transitory residences like hotels and hospitals, dorms whose occupants have a principal residence elsewhere. A home purchase loan is a loan that is both secured by and made for the purpose of purchasing a dwelling. This includes a loan secured by one dwelling that is used to purchase another dwelling. Mixed-use propertyA dwelling-secured loan to purchase property that is primarily used for residential purposes is a home purchase loan. For example, an apartment building could include a convenience store but the primary property use is residential. Any reasonable standard can be used to determine primary use from square footage to income. This can be done on a case-by-case basis.Farm loansA loan to buy property that is primarily for agricultural purposes is not a home purchase loan, even if it includes a dwelling. Any reasonable standard can be used to determine primary use, like the RESPA exemption of 25 acres or more. This can be done on a case-by-case mercial and other loansA home purchase loan does not need to be made solely in the mortgage or consumer loan department. The purchase of an apartment building (that is secured by that or any other dwelling) is reported as a home purchase loan. Construction and permanent financingA home purchase loan includes a combined construction/permanent loan; it does not include a construction-only loan which is considered temporary financing. Second Mortgage down paymentIf an institution makes a first mortgage to a purchase and a second mortgage loan to the same purchases to finance all or part of the down payment, it reports each loan separately.HOME IMPROVEMENT LOANSFor HMDA reporting purposes, a home improvement loan is A loan secured by a lien on a dwelling that is for the purpose, in whole or in part, of repairing, rehabilitating, remodeling, or improving a dwelling or the real property on which it is locatedA non-dwelling secured loan that is for the purpose, in whole or in part, of repairing, rehabilitating, remodeling, or improving a dwelling or the real property on which it is located and that is classified by the financial institution as a home improvement loan.Dwelling secured home improvement loansInstitutions must report under the home improvement loan category any loan OR application for loans secured by a lien on a dwelling if any portion of the loan proceeds would be used to repair, rehabilitate, remodel or improve a dwelling or the real property upon which it is located.Non-dwelling secured home improvement loansNon-dwelling secured loans and applications that are for the purpose, in whole or in part, of home improvement continue to be reported only if the institution classifies them as a home improvement loan. This could be done by computer coding, color coded files, or the call report. Improvements to real propertyHome improvement include not only improvements to the dwelling itself, but also improvements to the real property upon which the dwelling is located, for example installing a swimming pool, construction of a garage, or landscaping. Commercial and other loansA loan to improve an apartment building through the commercial department is a home improvement loan if it’s secured by a dwelling or if unsecured it is classified as a home improvement loan.Mixed-use propertyA dwelling secured loan to improve property that is for both residential and commercial use is considered home improvement only of the loan proceeds are used primarily to improve the residential portion of the property. Any reasonable standard can be used to determine primary use from square footage to income. This can be done on a case-by-case basis.Multiple-category loansA loan for purchase as well as home improvement or refinancing is reported as HOME PURCHASE. Purchase trumps ALL categories if a loan or application qualifies as a home improvement loans AS WELL AS refinancing, it must be reported as HOME IMPROVEMENT. Home improvement TRUMPS refinance. Remember H before R. REFINANCINGSA refinancing is a new obligation that satisfies and replaces an existing obligation. If the existing obligation is not satisfied and replaced, not only renewed, modified, extended, or consolidated, the transaction is not a refinancing for HMDA purposes.NOTE: If a new note is prepared and signed for a HMDA reportable renewal, it IS considered a refinancing for HMDA .Reportable refinancingsRefinancings are reported under HMDA only if both the existing obligation and the new obligation are secured by liens on dwellings. Lenders may rely on the applicant’s statement about whether or not the loan being refinanced is dwelling-secured.Refinancings are reported whether or not the institution was the original lender and whether or not the refinancing involves an increase in the loan principal. The purpose of the loan being refinanced is not relevant to determining if the loan qualifies as a refinance. Nor is the borrower’s intended use of any additional cash borrowed relevant to determining a refinancing (HOWEVER the borrower’s intended used of the funds could make the transaction a home improvement loan or a purchase loan). Refinancing FAQ’s from the FFIECRefinancing --- loan purpose. If an obligation satisfies and replaces another obligation, is the purpose of the replaced obligation relevant to whether the new obligation is a reportable "refinancing" under Regulation C?Answer: No. The new definition of a reportable refinancing looks only to whether (1) an obligation satisfies and replaces another obligation and (2) each obligation is secured by a dwelling. See 203.2(k)(2). Thus, for example, a satisfaction and replacement of a loan made for a business purpose is a reportable refinancing if both the new loan and the replaced loan are secured by a dwelling. Refinancing --- cash out for home improvement. How should a lender code a dwelling-secured loan when the borrower uses the funds both to pay off an existing dwelling-secured loan and to make improvements to a dwelling?Answer: A dwelling-secured loan that meets the definitions of both "home improvement loan" and "refinancing" should be coded as a "home improvement loan. "See comment 203.2(g)-5. The lender must code the loan as a "home improvement loan" even if the lender does not classify it in the lender's own records as a "home improvement loan." See 203.2(g)(1).Refinancing --- line of credit. If a dwelling-secured line of credit satisfies and replaces another dwelling-secured obligation, is the line required to be reported as a "refinancing"?Answer: No. A dwelling-secured line of credit that satisfies and replaces another dwelling-secured obligation is not required to be reported as a "refinancing," regardless of whether the line is for consumer or business purposes.Refinancing --- satisfaction of lien. Is the satisfaction of a lien (mortgage) relevant to determining whether an obligation is a reportable refinancing?Answer: No, the satisfaction of a lien is neither necessary nor sufficient to create a reportable refinancing. The credit obligation must be satisfied and replaced; it is not relevant whether the lien is satisfied and replaced. See 203.2(k)(2)Excluded LoansDon’t report loans or applications for: Unimproved landTemporary financing, such as bridge or construction loansLoans originated or purchased BY the institution acting as a trusteeNOTE: Best practice is to limit temporary financing exclusion to temporary and bridge loans.Temporary Financing. When is a loan "temporary financing" such that it is exempt from reporting?Answer: The regulation lists as examples of temporary financing construction loans and bridge loans. See 203.4(d)(3). Construction and bridge loans are illustrative, not exclusive, examples of temporary financing. The examples indicate that financing is temporary if it is designed to be replaced by permanent financing of a much longer term. A loan is not temporary financing merely because its term is short. For example, a lender may make a loan with a 1-year term to enable an investor to purchase a home, renovate it, and re-sell it before the term expires. Such a loan must be reported as a home purchase loan. See 203.2(h). (**********FIX?AND FLIP***************)Government Monitoring InformationIn an application for a HMDA reportable loan, an institution must collect the applicant’s ethnicity, race and sex as PART of the application process.This information is not required when the applicant is a legal entity, such as a corporation or partnership, rather than an individual. If the applicant is a sole proprietor YOU MUST STILL COLLECT THE MONITORING INFORMATION. This will mean you also report income of the sole proprietor if it was relied on to make the credit decision.Obtaining Government Monitoring InformationThe applicant must be informed that the federal government requests this information in order to monitor compliance with antidiscrimination laws. The applicant must be informed that if he or she does not provide the information when the application is taken in person, the lender is required to note the date based on visual observation or surname.Consumer loan requests to purchase a principal dwelling or refinance the purchase money should be taken on a FNMA 1003 application. Other requests (home improvement and non-purchase money refinance requests may be done on a consumer application along with a HMDA data collection form. The form is found in Appendix B of the Getting it Right Guide DOCUMENT HOW THE APPLICATION WAS TAKEN – IN PERSON, BY MAIL, BY PHONE, VIA THE INTERNET.Collection of partial information. When collecting government monitoring information (ethnicity, race, sex), must a lender permit an applicant to choose to fill in only one or two, rather than all three, of the fields?Answer: Yes. A lender must permit an applicant to choose to fill in only one or two of the three fields. For example, a Web-based application should not compel the applicant to choose between making selections in each of the three fields and declining to make any selections whatsoever. Unless the applicant clearly indicates the applicant declines to supply any information, the applicant must be given the opportunity to supply any part of the information the applicant chooses.Reporting of partial information. If an applicant chooses to make selections in one or two, but not all three, fields (ethnicity, race, sex), must the lender report the partial information?Answer: Yes. A lender must report whatever information the applicant supplies, whether partial or complete. For example, if, on an application submitted by mail, an applicant marks a box indicating the applicant does "not wish to furnish" government monitoring information but supplies some or all of the information, the lender must report the information supplied.Hispanic ethnicity. If an applicant self-identifies as "Hispanic or Latino" under the category of "Ethnicity," what options under "Race" are available?Answer: The applicant should be asked to identify a race or races from among the five choices available. If a lender is face-to-face with an applicant who (1) has self-identified as "Hispanic or Latino" (or whom the lender has identified as of that ethnicity because the applicant has declined to self-identify) and (2) has not identified a race, the lender must identify whatever race or races the lender believes apply, based on surname and visual observation. In those circumstances, the lender may not indicate "NA" in the race field. "NA" is used in the race field only if (1) the applicant is not a natural person, (2) the HMDA reporter has purchased, not originated, the loan, or (3) an application taken in 2003 reached final action in 2004 (see comment 203.4(a)(iv)(B)(3)). Obtaining the informationIn person application – always request the information by reading the form; if the applicant refuses to provide it make a visual observation and document accordinglyTelephone applications - always request the information by reading the form; if the applicant refuses to provide it document accordinglyMailed applications – the monitoring information should be included on the application. If it wasn’t on the application, send a form letter and monitoring information form. If YOU MEET THE APPLICANT PRIOR TO APPROVAL the information must be requested and the “in-person” requirements apply.ALWAYS DOCUMENT how the application was received.HMDA DATA EXCLUSIONS There are six exclusions for HMDA reporting in Regulation C. Financial institutions should NOT report the following:Loans originated or purchased by the financial institution acting in a fiduciary capacity (such as trusteeLoans on unimproved landTemporary financing (such as bridge or construction loans)*The purchase of an interest in a pool of loans (such as mortgage-participation certificates, mortgage-backed securities, or real estate mortgage investment conduits)The purchase solely of the right to service loansLoans acquired as part of a merger or acquisition, or as part of the acquisition of all of the assets and liabilities of a branch office as defined in Sec. 1003.2.*NOTE: Page 9 of the Guide makes a point that combined construction-permanent loans must be reported. There is NO definition of “temporary financing” in the Regulation. Also see the Commentary to Regulation C under definitions for Home Purchase loans 203.2(H)(3) in the “old” version and 1003.2 in the CFPB version regarding a farm loan; it is not a home purchase loan if it is for primarily agricultural purposes (this exception does not extend to home improvement or refinance applications).HOW TO TELL WHETHER A LOAN IS HMDA REPORTABLE:Loan Classification DefinitionsPurchase a dwellingRefinance Home ImprovementConstruction OnlyConstruction/PermSecured by A dwelling ; ANDOriginal loan secured by a dwelling; ANDPurpose is home improvement; ANDNever HMDA reportable if it does not include the permanent financing (Check with your regulator)Purpose is initial construction of a dwelling; ANDPurpose is to purchase A dwelling ; ANDNew loan secured by a dwelling (does not have to be the same one); ANDSecured or unsecured (for home improvement purposes and classified as such), ANDConstruction/Perm loan is made at a one-time closingNot temporary financing The old and the new loan are to the same borrower; ANDNot temporary financing Note: the dwelling being purchased and the dwelling securing the loan may be different.ANY portion of the proceeds are being used to pay off the old note; ANDA new note is being done (as opposed to a modification); ANDNot temporary financing DefinitionsDwellingAny residential structure. This means 1-4 family residences, 5 or more family residences (a/k/a multi-family), and manufactured homes. The mortgage position is not relevant.Manufactured HomeManufactured home means a structure, transportable in one or more sections, which in the traveling mode, is eight body feet or more in width or forty body feet or more in length, or, when erected on site, is three hundred twenty or more square feet, and which is built on a permanent chassis and designed to be used as a dwelling with or without a permanent foundation when connected to the required utilities, and includes the plumbing, heating, air-conditioning, and electrical systems contained mon ProblemsSTEP-BY-STEP CONTROLSThere are twenty-six data fields on the HMDA LAR. The only way to avoid compliance headaches with this complicated regulation is to have adequate internal control procedures to collect and verify the data. The table below lists each of the data fields and suggestions for internal controls and data collection.HMDA LAR DATA FIELDS AND CONTROL METHODS BEST PRACTICES FOR FILE DOCUMENTATIONCreate a HMDA file folder for each LAR entry that can be verified by a person or team that is knowledgeable in HMDA procedures. Make these files available to the regulator during a compliance exam so the HMDA integrity review for accuracy will be limited to HMDA information. Label EACH data field in this file with the numbers that correspond to the HMDA LAR (1-26)Highlight each data field on the source document next to the number of the data field.Perform a second review of the data; this can be done by an outside party or audit staff. Depending on the risk factors (past HMDA violations, rapid growth, decentralized processing, etc) the second file review may be a percentage of the LAR entries or it may require 100% coverage.Sign-up for the FFIEC e-mail alerts for HMDA; maintain a current copy of the “HMDA Getting it Right Guide”Revised written procedures as needed when changes are made to HMDA or deficiencies are noted in audits and exams.Train new employees; provide refresher training for all lending employees. Annual training is not required but should be done in accordance with exam and audit findings. DATA FIELDCONTROL METHODCOMMENTSApplication or Loan NumberLoan number if originated; unique code number if denied, withdrawn, or approved and not accepted – this may be date of application with a “D”, “W” or “A”.Do not use social security number or other personally identified informationDate ReceivedDate indicated on Consumer or Commercial Approval Worksheet for originated loans; date that the application received on denied/withdrawn loan mon error if the applications are not date-stamped or systematically created in loan application software. Often a problem with business purpose loans and there may not be a commercial loan applicationLoan TypeUsually conventional loansCan be a problem if there is a great deal of secondary market activity. Use software to populate this data field if possibleProperty TypeReal Estate collateral codes on Boarding Data sheet and collateral description on Approval worksheet; also indicated on HMDA reporting information worksheet. Property type for denied or withdrawn or approved but not accepted loans is indicated on Denied-Withdrawn WorksheetThese are the property types to verify: One to four-family (other than manufactured housing)Manufactured housingMulti-family Purpose of LoanPurchase (must be secured by a dwelling) Collateral & purpose drivenHome improvement – can be secured or unsecured (purpose driven)Refinance – purpose doesn’t matter, collateral drivenProblems for multi-purpose loans. Remember that purchase trumps all, home improvement trumps refinance. Another problem area is a construction loan that is being converted to a permanent loan – typically reported as a purchase loanOccupancyUse codes on boarding data if originated; require this information in the application processUse not owner-occupied (Code 2) for second or vacation homes and rental properties. Use not applicable (Code 3) for multi-family loans or if the property is not in an MSA or is in an MSA where your bank doesn’t have a branch.Loan AmountUse the amount of the note if originated; use the application amount if denied, withdrawn, or approved but not acceptedHighlight loan amount on note for originated loans, highlight loan amount on application or adverse action notice. Loan amounts are ROUNDED to the nearest $1,000; example: a loan for $167,300 would be 167 and $15,500 would be 16.Pre-approval CodeAlways 3 if there is no pre-approval program. Can be a high error field when beginning a pre-approval programAction Taken Type1 Loan originated2. Application approved, not accepted.3. Application denied 4. Application withdrawn by applicant5 File closed for incompleteness6. Loan purchased by financial institution7 Preapproval request denied 8. Preapproval request approved by not accepted (optional)1. Have copy of the note in file2. Documentation should be clear.3. Copy of adverse action notice4. Document date of withdrawal, only use if it was prior to the credit decision5. Copy of adverse action notice6. Copy of purchase info in file. 7. Documentation should be clear and copy of letter.8. Documentation should be clear and support the preapproval program guidelines.Action Taken DateDate of loan if originated, denial date, withdrawal date, date that customer declined loan approvalCopy of note, highlight date; copy of denial; file documentation of withdrawal notice or note to file that customer did not accept approval.MSA/MDFFIEC websiteMake sure you have geo-coded the correct property and used the CORRECT geo-code year.; don’t’ use appraisal or flood determination information unless verified to FFIECState““County (Parish)““Census Tract”“Ethnicity (Applicant)Request for in-person applications (must make visual observation or surname if the applicant declines to provide it) Read during phone applications; request for mailed applicationsIf the borrower is not a natural person (corporation or partnership) use the code for “not applicable”. The FDIC requires monitoring info for a sole proprietor.Ethnicity (Co-Applicant)“ If there is more than one co-applicant, provide monitoring info for the first co-applicant listed. Race (Applicant)Applicants can select more than one race, enter all codes they designateRace (Co-Applicant)If there is more than one co-applicant, provide monitoring info for the first co-applicant listed.Sex (Applicant)If the borrower is not a natural person (corporation or partnership) use the code for “not applicable” The FDIC requires monitoring info for a sole proprietor.Sex (Co-Applicant)If there is more than one co-applicant, provide monitoring info for the first co-applicant listed.IncomeThe gross income your institution used to make the credit decision. If no income was asked or relied on enter NA. Round to the nearest thousand. Report $35,500 as 36. If the borrower is not a natural person (corporation or partnership) use the code for “not applicable”. Loans for multi-family should use NA for income.Purchase TypeSee codes in the GuideEnter the code sold to the secondary market within the same calendar yearReasons for denialOptional; see codes REQUIRED for OCC banksRate SpreadReport for purchase, refinancing, or dwelling secured home improvement loans that are made for a consumer purpose that are originated. CRITICAL to document the date the interest rate was set for the final time before closing. Do NOT report rate spreads for loans that aren’t subject to Reg Z or unsecured home improvement loans. The format is 03.29 (leading zero and two decimal places; rounded if more than two decimals). Make sure that the lien status is accurate. HOEPA statusReport as code 1 for loans subject to HOEPA that were originatedLien StatusUse the collateral codes on the boarding data as documentationThe accuracy of lien status is critical for determining rate spreads correctly.LIST OF HMDA PROBLEMS AND SOLUTIONSFailure to include loan applications that resulted in denial or withdrawal. Solution: Develop and follow sound HMDA reporting procedures. REMEMBER: If A NEW note was prepared, it is a possible HMDA refinance transaction. Failure to include applications for mobile homes or multifamily dwellings originated as part of the consumer or commercial loan portfolio. Solution: Develop and follow sound HMDA reporting procedures.Reporting temporary construction loans. Solution: Follow written procedures for the definition used by your bank for “temporary” loans. REMINDER: FIX & FLIP LOANS ARE PURCHASE TRANSACTIONS!.Reporting multi-purpose loans – If a loan is a home purchase loan as well as a home improvement loan, or a refinancing, an institution reports the loan as a home purchase loan. If a loan is a home improvement loan as well as a refinancing, an institution reports the loan as a home improvement loan. Purchase trumps all. Home improvement trumps refinance. Solution: Remember the codes: 1 = Purchase; 2 = home improvement; 3 = refinance!!!!!Second mortgages that finance the down payments on first mortgages – if an institution making a first mortgage loan to a home buyer also makes a second mortgage loan to the same purchases to finance part or all the home purchaser’s down payment, the institution reports each loan separately as a home purchase loan. Solution: Code these types of loans correctly and follow written HMDA procedures.Which income should be used? The gross annual income is the income that your institution relied upon in making the final credit decision. Solution: Be consistent is reporting this information!Income must be rounded to the nearest thousand. Solution: Take the time to record this correctly.Dwelling is NOT limited to the principal or other residence of the borrower and includes vacation or second homes and rental properties. Solution: Be cautious with any loan request that involves the purchase, improvement or refinance of a dwelling. Property location – Multiple properties – For a home improvement loan, an institution reports the property being improved. If more than one property is being improved, the institution reports the location of one of the properties (more common method) or reports the loan using multiple entries on the LAR (with unique identifiers) and allocating the loan amount among the properties. Solution: Follow your bank’s written procedures.Multiple properties – For a home purchase loan, an institution reports the property taken as security. If an institution takes more than one property as security, the institution reports the property being purchased if there is just one. If the loan is to purchase multiple properties and is secured by multiple properties, the institution reports the location of one of the properties (more common method) or reports the loan using multiple entries. Solution: Follow your bank’s written procedures.Mixed-use property – A loan to improve property used for residential and commercial purposes (for example, a building containing apartment units and retail space) is a home improvement loan if the loan proceeds are used primarily to improve the residential portion of the property. If the loan proceeds are used to improve the entire property (for example, to replace the heating system) the loan is a home improvement loan if the property itself if primarily residential. An institution may use any reasonable standard to determine the primary use of the property, such as by square footage for by the income generated. An institution may select the standard to apply on a case-by-case basis. Solution: Follow your bank’s written procedures.Failure to collect monitoring data (ethnicity and race). Solution: follow your bank’s procedures. Remember that you are required to READ the data collection information to phone applicants and request it from in-person applicants. Appropriate forms should be included with applications sent by mail to applicants. It is critical that you document HOW an application was taken – in-person; by phone; by mail.Rate-spread calculations – this is a 2 decimal point field and should be rounded and reported as 7.29% if the calculation was 7.286%. Correct purchase codes. This question was sent prior to the presentation: “What is the correct code for a loan that is sold to the Federal Home Loan Bank? For many years the bank reported these loans as a code 6 (commercial bank). The regulator questioned this code during the last exam and said they should be coded as a 9. A message was sent to the HMDA Help Desk AND directly to a regulator. Both confirmed that the correct code should be a “9” for “Other type of purchaser”. When asked about the number of years that might have to be submitted, the HMDA Desk said that the regulator is the final authority but they will only accept the last two years of reporting. COMMON HMDA PROBLEMS FOUND IN INDEPENDENT AUDITS1.? Lack of written procedures for entire HMDA process. 2.? Lack of effective "scrub" processes – this should be done at least quarterly. The individual who has collected the initial information and completed the input should NOT be the person to perform the scrub. The person doing the scrub should be knowledgeable about HMDA requirements and not be involved in the collection and input process. All LAR entries should be completed within 30 calendar days after quarter-end for qualifying applications.? 3.? HMDA reportable loans found on loan trial or in adverse loan files but not on LAR.? The regulators request a loan trial and sort by loan date and collateral to identify potential loans that should be on LAR. Ideally, the monthly “new loan report” and applicable adverse action, withdrawn, and approved but not accepted files should be compared EACH month to the LAR.? 4. There is often confusion between "short term" and "temporary" financing.? Banks have failed to report the "fix and flip" loans they were doing after a disaster. Customer would borrow money to purchase and renovate damaged property with a loan term of 6 - 9 months.? The loan paid off via a sale at maturity.? Many banks considered this temporary financing and did not report.? However, the loan should have been reported as repayment was NOT from longer term permanent financing but rather sale of property. ? Another example would be a 6 month loan for dwelling renovations where repayment coming for insurance proceeds or bonus money.? The loan is reportable - it is short term but not "temporary financing". ? Third example - Borrower had bought a property at sheriff sale with their money.? The applicant then requests a loan to reimburse himself.?The loan is secured by the purchased property.? The loan is NOT HMDA reportable as it is not a purchase, refinance or home improvement. ? Fourth example - Borrower made a construction/perm loan at the bank to build personal residence.? Construction costs exceed loan amount.? Borrower requests additional funds to complete residence to be secured by a CD.? The CD secured loan is not HMDA reportable as it is not purchase, refinance or home improvement.? 5. There is often a problem with relying on “automation” to complete the LAR. This may happen when a bank uses a mortgage underwriting system to capture the information. If there are inconsistencies with the data fields, there will be errors in the LAR. FDIC SUGGESTIONS TO PREVENT HMDA ERRORSIn establishing an effective compliance management system for HMDA, the responses to these questions are considered. We’ll review the business lines at your institution including commercial, consumer, residential, mobile homes, ensuring that HMDA procedures are in place in all of these areas for identifying and reporting HMDA applicable loan types.For each of these areas where HMDA reportable applications are handled, we’d inquire as to who was responsible for gathering the 25 - 30 data fields for each file. We would discuss how the LAR is actually populated, whether it’s an automated process with your system or if it’s manually completed.In most instances the process is automated to a certain degree. So we discussed the level of monitoring that is completed to ensure the accuracy of the of the automated program.We will review any data collection worksheets that are used, to insure that all the fields are appropriately captured. Another query would be how the institution evaluates audit and examination findings.Does the institution adequately respond to findings and recommendations, correcting prior violations and identifying the root causes of violations to ensure future compliance where needed enhancements and improvements made?Lastly, is the institution staying on top of the various types of changes that may occur that will affect the HMDA reporting function?Ensuring CompletenessImplement tracking procedures for denied, withdrawn and incomplete applications. Ensure automated systems identify HMDA transactions as appropriate. Compare new loan lists, from all business lines, against the LAR loan entries.Institutions must have adequate tracking procedures for ensuring that non-originated files are reported. Again, to the extent your process is automated, some level of validation of this procedure must be completed to ensure it’s fully capturing all of the needed loan types.Examiners have noted issues when an institution begins to offer a pre-approval for the first time and the software or the internal system that’s used is not updated to reflect this change and therefore, for some reason, it’s not capturing all of the reportable loans.Some institutions’ internal systems tie directly to the HMDA reporting software. However, as part of regular monitoring the integrity of this must periodically be verified, particularly in the example I gave, if any updates are made to the internal systems or any changes in your loan offerings.As previously mentioned, a comparison of new loan lists against the LAR, may also be an easy way to identify omissionsEnsuring AccuracyImplement clearly defined data collection procedures.Properly document the facts and progressions of the transactions in each loan file.Update your data collection software and ensure that software settings are properly configured for appropriate coding.Periodically train staff and, possibly, hire detailed- oriented staff.Implement standardized forms and job aids.Implement effective internal controls, such as second reviews and new loan reviews.? Conduct thorough data audits by comparing data reported to source documents, not just to collection forms.The HMDA data collection procedures should be in writing and available to all applicable employees. These procedures should be detailed and provide the user with enough information to accurately complete the data fields.Often, institutions utilize a conversation log or some sort of notepad to provide a timeline or rundown of the interaction with the applicant. This is particularly important when accurately reporting non-originated applications. Slide 16 please.Staff must know and follow the intent of the definitions but need not cite chapter and verse. Institutions often designate an individual as their HMDA specialist and this person oversees the process and receives the detailed specialized training.Individuals assigned the responsibility for preparing and maintaining the data must be given the resources and tools needed to produce and complete accurate data. A job aid with data fields explained would be helpful for ensuring proper collection from the file.In addition to the completion of this job aid a second review of all loans or a sample is another method to prevent reporting errors and to maintain compliance.Of course, similar to our data validation procedures, the extent to which you can and should review HMDA and the number of LAR entries depends upon the size of your LAR and the complexity of your lending operations. And finally, just a couple of comments relative to audits.Institutions may consider having audits completed closer to the submission date which of course we all know is March 1st. And as a side note, and I’d like to emphasize the review must compare the LAR to the actual source document in the file.Moving along, the next three slides, 17, 18 and 19, discuss resubmissions. Slide 17 reviews in general the factors that are considered in determining if resubmission is required. In other words, what triggers the requirement to resubmit a LAR?Clearly the results of the HMDA validation as well as the number and type of violations noted, are part of the process. Other factors include whether or not the violations are in a key field and if the inaccuracy impacts CRA and fair lending data.Again, generally, depending upon the severity of the errors consideration is also given to the impact of those errors and the institution’s previous history of HMDA compliance.Resubmission of HMDA LARs may be required depending on the following:The results of the HMDA validation testing. and/orThe errors found during the validation testing are of the type/number that would affect a CRA or fair lending review.If an institution is required to resubmit it HMDA LAR:The institution will be advised to correct and re- submit LARs covering the most recent two calendar years. For omissions and significant errors beyond the two most recent years:The institution will be required to correct, review, and verify the data. AndMaintain the corrected data for public disclosure in accordance with HMDA.When required to resubmit data, an institution should:Review the entire LAR for errors and correct all errors found.AndPrior to resubmission, acknowledge to the Regional Office that the data have been corrected.Once the corrections have been made, examiners will revalidate the corrected LAR.FAIR LENDING AND HMDAHMDA DATA ANALYSIS STEPS IN HMDA DATA ANALYSIS - THE FUNDAMENTALS Compare apples to apples; segment products based on the eight types of loan products used by regulators in HMDA pare apples to apples; compare the loan pricing within each product between target groups to detect potential discriminationEnsure the accuracy of data to be reviewedLook for potential redlining in your assessment areas and any conspicuous gaps to serve target groups First Step – Segment products based on eight types of loan products used by regulators in HMDA analysis.Conventional, owner-occupied, home purchase, 1st lien, 1-4 familyGovernment-sponsored, owner-occupied, home purchase, 1st lien, 1-4 familyConventional, owner-occupied, home improvement, 1st lien, 1-4 familyConventional, owner-occupied, refinance, 1st lien, 1-4 familyGovernment-sponsored, owner-occupied, home improvement and refinance, 1st lien, 1-4 familyAll 1st lien, owner-occupied, manufactured housing (conventional and government-insured; home purchase, refinance and home improvement)All owner-occupied, home purchase, 2nd lien (conventional and government-insured; 1-4 family and manufactured housing)All owner-occupied, home improvement and refinance, 2nd liens (conventional and government-insured; 1-4 family and manufactured housing). Second step – compare the loan pricing within each product type to determine if there are pricing differences between the loans to members of the prohibited basis target groups and loans to members of the control groups to detect potential discrimination. Compare the target and control groups' average rate-spread, incidence of higher price loans, and loans identified under the Home Ownership and Equity Protection Act (HOEPA). Examiners will look at a variety of substantial disparities among targeted groups. Some of these may include: a) the approval/denial rates for protected applicants (especially within income categories) and b) disparities in the incidence of higher-priced loans for protected applicants and c) substantially higher percentage of withdrawn/incomplete applications from protected applicants. Target groups are specific minority groups or females, and control groups are Non-Hispanic whites or males If there are pricing differences, determine if they are simply a result of established lending criteria; i.e. higher debit/income and lower credit score results in a higher APR.After reviewing differences for pricing criteria determine if there any unexplained, statistically significant disparities between the target and control groups.* *Statistically significant is defined as a significance level of at least 5 percent. Statistical significance is the probability that an observed disparity would occur if there was no underlying systematic difference in treatment (that is, differences were truly random). Statistical significance levels of at least 5 percent are considered, by economists and statisticians, to be a strong indicator that the observed disparity is not likely to be due to random chance. A statistical significance level of 5 percent is also accepted by many courts as sufficient to rule out chance. See Waisome v. Port Auth., 948 F.2d 1370, 1376 (2d Cir. 1991). SOURCE – Footnote 15 in the FDIC speech to Congress July 25, 2007. NOTE: Check with YOUR primary regulatory for a current definition of “statistically significant”Third step – Ensure the accuracy of data to be reviewed. Follow these easy steps.Use the FFIEC software for edit errors. Review for quality errors and for edit errorsFind the most current edit messages; this is the link to the edit messages: to understand the edit messages that are updated annually; check the FFIEC website. ................
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