The Consumer Financial Protection Bureau (CFPB) released the 2022 Modified LAR on March 20, 2023. We are already finding data integrity issues in publicly released HMDA data. Now is a great time to be sure your HMDA preparation and submission tool can help you identify data integrity issues before submission. Unfortunately, there are tools out there that are not catching these errors. Doing a proper HMDA Scrub is to compare data in your loan application register (LAR) with loan origination source systems (LOS) or physical loan documents.
Doing a HMDA scrub is crucial for several reasons:
It Reduces Compliance Management System Risk Factor
- It Reduces Compliance Management System Risk Factor: During a fair lending compliance examination, the examiner will typically review a sample of your institution’s HMDA data to check for accuracy by comparing it to specific loan files. If the data is inaccurate, the examiner may deem it a compliance management system (CMS) risk factor, which can outweigh other risk factors and be detrimental to your institution’s foundation.
It Prevents Potential HMDA LAR Redo
- It Prevents Potential HMDA LAR Redo: Discovering HMDA data problems during an examination may result in costly recompilation or file scrubbing of the entire HMDA LAR. The cost of doing this can be very high for large LARs, sometimes exceeding seven figures.
It Provides Potential Litigation Evidence
- It Provides Potential Litigation Evidence: If you intend to rely on HMDA data in litigation, faulty HMDA data can hurt your case more than it helps. Accurate HMDA data is critical to demonstrating that your institution does not make underwriting and pricing decisions based on prohibited factors.
It Confirms the Systems of Records
- It Confirms the Systems of Records: Your institution’s HMDA LAR should agree with its loan origination system data. A HMDA scrub can confirm this or identify weaknesses in either system. A common problem is changes in one system that are not updated in the other.
It Helps with Process Improvement
- It Helps with Process Improvement: The HMDA scrub can help your institution identify and address systemic, interpretational, or human errors and improve the overall process.
ComplianceTech has designed HMDA Ready™ to facilitate all aspects of a HMDA scrub. Our popular fair lending software products suite includes LendingPatterns, Fair Lending Magic, CRA Check, HMDA Ready, Fair Servicing, and Fair Lending Consulting. If you’re unsure which fair lending software is best for your organization’s needs or if you need more than one solution, request a demo to experience the features of each option.