Auditing HMDA Loans

Be sure to JOIN US on November 3, 2020, for our webinar, “Auditing HMDA”. 

HMDA is one of those labor-intensive regulations that, if you don’t get it right, it can come back to haunt you with LAR resubmission, civil money penalties, etc.  It’s important to look at your HMDA loans with a fine-tooth comb to ensure they are reported as accurately as possible.  This webinar will help guide you through some of the hot spot areas that can trip you up.  One of those areas is demographic information.

Click on the video to listen to David explain more.

Video Transcript:

Hi, it’s Dave Dickinson with Banker’s Compliance Consulting. Hey, since HMDA changed several years ago, probably the number one question we get has to do with demographic information collection and specifically about these boxes that say, “How did you collect the demographic information for ethnicity, for race, for sex when the applicant was not present?” Look at the screen right now, you’ll see the demographic information form. And specifically, I want to zero in on those boxes in the bottom that says, “To be completed by the institution for applications taken in person.”

It’s really clear that when someone’s there in person and they mark down that they do not wish, or maybe they just say, “I don’t want to,” and you mark down, “I do not wish,” on their behalf, but then the loan officer has to then complete the ethnicity, the race, the sex, and that would be the blue marks that I’m using on your screen. But then there’s that section in there that says, “How was this information collected?” Did the lender do it? Yes or no? Well, that’s pretty obviously that yes, yes, yes, the lender did those things. But what happens when the applicant is not in person?

Let’s say that they drop this off, they fill it out through the internet, over the phone, or whatever, and the applicant says, “No, I don’t want to provide that information.” If you read the form, it says, “To be completed for applications taken in person.” So does the loan officer then fill out the no, no, no, or do they just leave that blank? Now, technically, the loan officer doesn’t have to complete that part of the Fannie Mae 1003 or collection form, that isn’t a regulatory requirement. But when you go to filling out the information on the loan application register, there are certain codes that you have to use.

It made sense to us that this wasn’t just for those cases, not in person. Why? Because the filing instruction guide said that code two for the no, no, nos, if you will, was to be used in all cases except when the loan was purchased from another institution or it was a non-human applicant, an entity, if you will. Or let me say it another way. Code three, the not applicable, could only be used when it was a non-human entity that was applying or a purchase loan. So, in a sense, we have to mark down code two, you’d say. A lot of systems, though, however, would not allow you to use code two if it said that it wasn’t in person. And so, we were stuck with the software issue and what to do with it.

The CFPB finally gets around to answering this question back in March of 2020 with some updates to their frequently asked questions. And here’s what they said. “You can do either code two or code three. We don’t care, just be consistent.” So, we really have no way to lose here.

Now, that also, if what you see on your screen right now has to do with the ethnicity, but you’re going to find the same codes for race and data fields 49 for the applicant, 50 for the co-applicant, you’re going to find this same situation for sex fields for the applicant and co-applicant and data fields 53, 54. That’s the minutia kinds of things that we have to get into when we’re auditing HMDA. And we’re going to be doing just that for two hours November 10th, you can join me where we’ll get into the details of auditing HMDA, what to look for, where to look for it, what we’re hearing from the field, from our clients, and from examiners, the underwriting data elements and hotspots, this demographic information. And we’re going to get all of your questions answered. So please join me then. We’ll see you then.

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