HMDA compliance has been looming over credit unions for many years. It was actually enacted by Congress in 1975 but wasn't transferred to the Consumer Financial Protection Bureau until 2011. The financial industry has been revamping their loan processes in order to ensure compliance with recent and more rigorous adjustments to the regulation, but what exactly does that entail? Here is the download on recent HMDA announcements and how your credit union can remain compliant.
First things first, what is the HMDA (Home Mortgage Disclosure Act)?
The HMDA rule was set forth back in 1975 and implemented by the Federal Reserve Board's Regulation C, thus requiring financial institutions to collect, report and disclose data about their mortgage lending activity.
Most recently, a final rule declared that borrower privacy interests arise if the disclosure of unmodified HMDA loan-level data either ”substantially facilitate the identification of an applicant or borrower, or disclose information about an applicant or borrower that is not otherwise public and that may be harmful or sensitive.” Regulation C currently mandates that credit unions make available a written notice advising that the credit union’s loan and application register might be obtained from the Bureau’s website and modified by the Bureau to address privacy concerns.
The CFPB recently announced some policy guidance describing what loan related HMDA data might be disclosed to the public without modification and what HMDA data would be completely excluded.
What loan-level data would be eliminated or revised?
Exclusions:
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Universal loan identifier
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Application date and date of action taken for covered loans or applications
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Address of the property that serves as collateral for the loan
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Credit scores involved in making a credit decision
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Nationwide Mortgage Licensing System and Registry identifier for the mortgage loan originator
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Results from the automated underwriting system used in evaluating the loan application
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Race and Ethnicity
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Name and version of CU scoring models used in credit decisioning
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Primary reason for denial of an application
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Name of the automated underwriting system used by the FI
Modifications:
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Amount of the covered loan
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Value of the property serving as collateral for the loan
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Age of the applicant
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Debt-to-Income ratio (DTI)
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Number of individual dwelling units related to the property securing the covered loan. For properties including multifamily dwellings, the number of affordable units related to the property.
HMDA guidelines go into much more detail on how to modify and exclude the above listings, so be sure to refer back to the final policy to ensure full compliance for your credit union.
How Can Credit Unions Become Compliant?
Most credit unions rely on third-party SAAS solutions to meet HMDA compliance. Some core data processors or loan origination systems provide built-in HMDA reporting while others require a HMDA specific software to be bolted. Some even treat the HMDA data as an afterthought and maintain the data in a separate system altogether. Here are a few key points to consider when finding a HMDA reporting solution for your credit union:
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Enabling real-time data management
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Locating and editing data errors
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Monitoring all data and changes through audit trails
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Automatically checking data quality and regulatory compliance
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Minimizing IT costs while increasing efficiency and ease of maintenance
HMDA compliance is a big undertaking, but becoming compliant can be made easier through software solutions that integrate with the core system or loan origination system. As credit unions seek to expand lending to first mortgages, finding a core solution that can provide compliance is of the utmost importance. Built-in HMDA compliance will help your credit union adhere to the latest regulations without losing operational efficiency, and in the long run, it will be more cost effective too.
