With only a few months left before your March 1 filing, now is a good time to plan the year-end HMDA scrub. The point of a HMDA Scrub is to compare specific data in the loan application register (LAR) to loan origination source systems (LOS) or physical loan documents. There are several reasons why you should always do a HMDA scrub:
- Compliance Management System Risk Factor: The starting point in a bank or credit union compliance examination that includes fair lending is for the examiner to take a sample of the institution’s HMDA data to check for accuracy by comparison to specific loan files. Examiners generally take a relatively small sample that can have huge consequences. If the examiner determines that the HMDA data cannot be relied upon, then this may be deemed a compliance management system (CMS) risk factor. CMS risk factors can outweigh other risk factors because they represent cracks in the foundation on which the CMS is built.
- Avoid Potential HMDA LAR Redo. Depending on the depth and breadth of HMDA data problems discovered by the examiner, the results may call for a costly recompilation or file scrub of the entire HMDA LAR because the regulator lacks confidence that the LAR can be relied upon for fair lending testing. The cost of doing this can go above seven figures for large LARs.
- Potential Litigation Evidence. If you intend to rely on HMDA in a litigation context, faulty HMDA is more likely to hurt than help. HMDA data can be a friend or a foe. In most instances, the expanded HMDA dataset is likely to help a lender to demonstrate that it does not makes underwriting and pricing decisions on prohibited basis. If the data is seriously flawed, it may not be acceptable for this purpose.
- Confirmation of the Systems of Records. An 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.
- Process Improvement. The HMDA scrub can help the institution identify and distinguish systemic, interpretational, or human errors and respond by improving the process.
ComplianceTech has designed HMDA Ready™ to facilitate all aspects of a HMDA scrub. We can help you monitor and evaluate your fair lending risks. The ComplianceTech Suite of popular fair lending software products include:
If you’re not sure which fair lending software suits your organization’s needs best — or whether you need more than one solution — request a demo so you can experience the features that come with each option.