Regulators require that your internal HMDA LAR be updated on a quarterly basis. Some even make you do it monthly, if you have been told. Or maybe you have had so many errors and issues in the past, including civil money penalties, that you have decided that the best practice for your institution is to monitor HMDA data on a monthly basis. Or, you could be one of those institutions who still thinks it’s okay to wait until January or February to scrub your data, after all, submission isn’t until March 1st. (This is an incorrect assumption as the regulation clearly requires you to update no later than 30 days after a calendar quarter close.) Whatever your circumstance, most institutions do not properly scrub their HMDA data. So, how do you?
Most institutions scrub their HMDA data by matching what has been put on the LAR to what was on the HMDA log form or what was entered into the system. That is incorrect. The theory of garbage in, garbage out applies. What you need to do is take a print out of your LAR data and compare it to your actual loan file. Thus, you find out whether or not the form or system data entry was correct to begin with.
Start with sorting your HMDA data using spreadsheets to identify codes that do not match up, for example if you indicate there is no co-applicant, but you have GMI for a co-applicant or if you do not have a pre-approval program, but there are pre-approval codes showing up on your LAR. These are quick identifiable issues.
HMDA Source Worksheet
The easiest way to document HMDA data is to first develop a HMDA Source Worksheet. In other words, what are your actual source documents for each data element that must be captured for HMDA reporting. Nothing fancy, nothing frilly. Just a spreadsheet listing out the HMDA data fields, with a column next to it to indicate what source documents have the correct (and consistent) information. You will want to do this for each type of application you have. For example, for a residential mortgage loan, your application may be the 1003 and the GMI information is located on page 4 of 5. For your commercial loans, you may have a separate GMI form. You will want to indicate the appropriate source document for each type of application. That way, everyone at your institution uses the same source documents and data is reported consistently.
Files should also be reviewed for what I call ‘love notes’. These are the chicken-scratch notes, emails, napkins, envelops, etc. where folks like to write notes during phone calls and other communications with applicants. Be sure that these ‘love notes’ do not conflict with your source documents. For example, a ‘love note’ that indicates a call from the customer to withdraw their file after you already communicated an approval. So, if you state Action Taken is Withdrawn based on the ‘love note’, that would be incorrect because you already approved the loan. The loan should be reported as Approved not Accepted as your underwriting or conditional commitment source document indicates.
Whoever is responsible for completing the HMDA log sheet, should be required to print out the FFIEC geocoding and rate spread pages and put in the loan file. Same for HOEPA testing; put the worksheet in the loan file. These simple steps will save you, the compliance officer, and your examiner valuable time during reviews. And, it will demonstrate to your examiners that you know the rules!
So, to scrub your HMDA data, you compare your source documents in the loan file to the HMDA LAR entry to verify the data was reported correctly. Do not assign staff or consultants or temps who do not understand HMDA to scrub your data. This will only lead to greater errors.