John Zasada, Compliance Consulting Director, Financial Institutions Group

On Jan. 29, 2021, the Federal Reserve System issued Consumer Compliance Outlook Fourth Issue 2020 featuring articles on the Home Mortgage Disclosure Act (HMDA), mortgage servicing and an overview of various regulatory updates.

The article on HMDA is an excellent overview of its regulatory requirements and tips for compliance, as HMDA violations were among the top 10 compliance violations cited by Federal Reserve examiners even before the Dodd‒Frank Wall Street Reform and Consumer Protection Act (Dodd‒Frank Act). So much so that regulations were implemented to require HMDA reporters to begin collecting additional data fields beginning in January 2018, while making changes to some of the existing fields.

Below are some tips the article provided for complying with HMDA regulations:

  • Develop staff with specialized HMDA proficiency. This is important because compliance requires attention to detail due to the large number of data fields collected for each application and a solid understanding of its requirements, especially given the complexity of the regulation and certain transactions.
  • Determining ways to handle certain HMDA scenarios. Your institutions should policies in place on how specific information should be reported (for which the regulation allows some latitude) This will eliminate guesswork and ensures consistency across business lines. An example of a situation in which the financial institution should determine in advance how it will respond includes using the date of the adverse action notice to determine the action taken date for denied applications (rather than using the date of the decision to deny the application, which could be a different date).
  • Use an automated collection process. This will reduce the burden of compiling HMDA data. Automated collection offers a consistent process, using the information entered during loan origination as source documentation for HMDA data. The level of automation may vary from institution to institution, usually depending on factors such as origination volume and institutional complexity.

Want to verify you’re in compliance with HMDA regulations? Contact our regulatory compliance specialists today.