You may remember a few weeks ago in my HMDA update newsletter, I mentioned that one of our team members had been invited to attend the CFPB's Live HMDA Platform Demonstration at the CFPB's headquarters in Washington, DC. I am so excited to share with all of you that I was the lucky team member, and last week I had the privilege of attending this demonstration. It was such an honor to represent Temenos Compliance Advisory Services, and to be able to share my thoughts and opinions with the CFPB. Since I was the only compliance consultant, I was able to offer insight that most of the other attendees could not. Let me just say that I believe it was an eye-opening experience and our conversations are ongoing.
Before I talk about how the new process will work, let's recap how the current process works. Each year lenders have gone to the FFIEC website, downloaded the input software and recorded HMDA reportable applications and loans into this software. Once the file was ready to be submitted to the Federal Reserve, a batch edit was performed to check for any validity or syntactical errors. Then, the information was either exported to a disk or was submitted electronically. Once submitted, an "Edits Report" was received from the Fed that required error verification. The file along with a signature page were then faxed back to the Fed. At that point, the Fed would then either return the file with additional edits to be corrected and the process would repeat, or the file would be accepted. Confirmation of acceptance has never been provided in the past... you simply had to assume the absence of additional edit requests meant the process was complete.
The new process does not involve downloading free software from the FFIEC, or any other site. That part is now the financial institution's responsibility. The CFPB has provided the LAR Formatting Tool to help financial institutions create an electronic file that can be submitted to the CFPB via their new HMDA Platform. The issue with the LAR Formatting Tool is that it is intended to be used by institutions with small volumes of covered loans and applications; not those institutions who have larger volumes. The assumption is that institutions will either use the HMDA Platform tool, obtain a similar product from the lender's LOS provider, or go to a third-party vendor and purchase a product to create the file.
So how does this new Platform work? As with pretty much any online program, a lender must first create and verify an account. The lender must then choose their financial institution(s) from a list provided. A lender will then "Begin Filing" by uploading the HMDA LAR file to the Platform. Once the file is uploaded, it will automatically test for any validity or syntactical errors, stop the process, listing each error and requiring review and correction as needed. Once that step is completed, the tool will validate those corrections. The tool will then move to two additional edit stages, stopping at each stage to list any errors, requiring review and correction as needed. Once complete, confirmation stage will display a summarized listing of the HMDA data in a table format. If an error is produced in this stage, a lender must update their file and restart the process by uploading a new file. Once ready to submit, a lender will then proceed to the next screen to review Respondent and File Information and certify the accuracy and completeness of the data being submitted. Once submitted, automatic receipt message with a receipt number will be provided.
You may be asking, "how does this change things for me?" The most obvious change is that a lender is no longer going to have access to free software to enter HMDA data throughout the year. The CFPB representatives kept reiterating that it was not their duty to provide financial institutions with the collection software. This is where LOS providers and software vendors are going to become extremely important. If you have not already talked to them about how they are going to get you ready, now is definitely the time. Small institutions may be fine with using the CFPB's LAR tool to submit their file, but larger institutions... that tool is NOT for you. Get with your LOS provider and see what they are doing. If they cannot help, look for a vendor who will. You MUST have your data in an acceptable format or else it cannot be reported. It's that simple.
So, what challenges does this new process present? The CFPB's LAR tool is an Excel document consisting of one row where data is input straight across the line. I do not find it to be "user friendly" at all so I think the loss of the free software is going to be a HUGE adjustment. Yes, there will be vendors who will offer software that will be much more user friendly than the LAR tool, but at what cost? And how long will it take to get it installed, tested and have everyone trained? Remember, it is almost October and you will have to get all of your 2017 data entered before March 1, 2018. If your LOS provider is going to be able to pull this data into a file for you, is it ready now? Is this an extra expense? The biggest challenge is that the HMDA Platform is not available yet. When will it be accessible to the institutions? The CFPB says, "soon." Their Production Roadmap, which is tentative and subject to change, shows that it will be available late fourth quarter, along with the Check Digit tool and the Geocoder tool. Let's hope the process stays on target. As a side note, we did not get to see the Check Digit and Geocoder tools due to a glitch with the HMDA Platform that took longer than expected to get fixed; I was really disappointed!
There are some bright spots. The editing and submission process will be MUCH easier! Once a file is uploaded, it will automatically run each edit individually and require correction before it will proceed to the next step in the process. No more faxed copies for written corrections and explanation. Once all errors are corrected, the file can be submitted immediately and a digital receipt will be provided. No more worrying about whether it was received. Once the submission is complete, the process is finished.
I was asked, "if you were responsible for making these changes at an institution, what would you be thinking right now?" My first thought was "RUN!" But seriously, my biggest concern at this point would be having that file in the right format. Who is going to help my institution get it? Is our LOS going to be able to pull the data elements from our loan platform and put it into a properly formatted file? If not, who do I need to reach out to who can make this process work? How long will it take and how much is it going to cost? And what type of guarantee is there that this will work since the Platform is not even available for testing?
Let me end this on a positive note. One of the best things you can do for your institution right now is to make sure the file you submit is accurate. Understanding the rules is vital and that is where Temenos Compliance Advisory Services comes in. We have a team of compliance experts who are here to answer any questions you may have about the new rules. Please do not hesitate to submit your questions! The more you know, the better prepared you will be for January 1, 2018, and HMDA filing... CFPB style.