BLOG

Question: What is our potential liability for inaccurate HMDA data?

Answer:

The Consumer Financial Protection Bureau (CFPB) has taken action against HMDA reporters in recent months for inaccurate reporting of HMDA data. In a previous FAQ on this subject we discussed the importance of monitoring employees to ensure their accurate HMDA data collection and reporting of demographic information (race, ethnicity, and sex). We highlighted that the CFPB imposed a $12 million fine after finding that bank employees failed to ask mortgage applicants certain demographic questions and falsely reported that applicants chose not to respond.

It is clear that enforcement actions, reputational risk, and potentially exorbitant fines and penalties are all risks. Also noteworthy is that the CFPB has often performed additional follow-up reviews of HMDA reporters found in violation. These additional reviews require company/bank time and resources on top of what would normally be allocated to HMDA data scrubbing and reporting and may result in additional actions and fines to the HMDA reporter.

Most recently, the CFPB filed a proposed order against a non-bank mortgage lender labeling it a repeat offender and, in addition to a large civil money penalty ($3.95 million), indicated it will:

• Require the mortgage company to retain the services of a qualified third-party independent auditor to perform:

1. Quarterly HMDA data transaction testing;
2. Root cause analysis for each error identified by the testing; and
3. Quarterly written transaction test reports describing the methodology used and summarizing the HMDA transaction test and results, including errors identified, error rates per data filed, the root cause of the errors, and all actions taken to prevent re-occurrence of the error.

• Establish a HMDA Compliance Subcommittee of the Board consisting of specific executive officers that meets at least every quarter (and maintains minutes of meetings) and reports to the Board the status and outcome of corrective actions arising out of HMDA testing;

• Create and implement a comprehensive compliance plan, which includes enhanced employee training and controls, to ensure compliant HMDA reporting.

Need help navigating the hurdles of HMDA or want a subject matter expert to test your process to see if it’s functioning properly?

Schedule a call today!