On August 22, 2017, the Federal Financial Institutions Examination Council (FFIEC) released updated guidelines for testing Home Mortgage Disclosure Act (HMDA) data collected in 2018.
Below are several key observations for covered institutions:
- Examiners have flexibility in selecting a sample from the Loan Application Register (LAR). It may be a single random sample or, in the case of multiple data collection/reporting systems, the sample may cover all systems, or focus on specific systems based on risk.
- Examiners may review all data fields in the sample, or prioritize and test a designated subset of fields.
- Testing will be divided into two stages:
- An initial sample (a subset of the total sample), and
- If any data field has an error rate above the established threshold for the initial sample, the total sample will be reviewed for that data field (Examiners may choose to review all fields in the full sample)
- For institutions with a LAR count greater than 100,000 the following thresholds apply:
|Total Sample Size||Initial Sample Size||Initial Sample Threshold||Resubmission Threshold|
The resubmission threshold of 2.5% for specific data fields is more favorable for institutions than previous FFIEC guidelines, which had established a 2% resubmission threshold.
- Resubmission is based on data field error rates. If a specific field has an error rate that exceeds the resubmission threshold, the LAR will need to be resubmitted with corrections made to that field. The examiners may also judgmentally direct an institution to make corrections to fields if they believe errors in those fields would make analysis of HMDA data unreliable (even if the error does not reach the resubmission threshold). Notably, this differs from the previous FFIEC approach, where both data field specific (previously 2%) and total error rates (previously 4%) were taken into consideration for resubmission.
- An error in any field associated with Applicant Race, Co-applicant Race, Applicant Ethnicity, and Co-applicant Ethnicity will only be counted as one error for that grouping.
Navigating the scope of changes from the new HMDA rule can be challenging and time consuming. The addition of quarterly reporting may cause additional challenges for institutions’ compliance departments.
There are innovative solutions in the marketplace, such as robotics and automated testing that can mitigate the compliance challenge. Deloitte has a proven track record in helping our clients tackle changes in the regulatory landscape. For more information or questions on the final HMDA rule, please contact us.
Principal | Deloitte Risk and Financial Advisory
Deloitte & Touche LLP
Senior Manager | Deloitte Risk and Financial Advisory
Deloitte & Touche LLP
Manager | Deloitte Risk and Financial Advisory
Deloitte & Touche LLP
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