What We Can Learn From Recent HMDA Enforcement Actions
The CFPB may not be known for pushing the envelope under Director Kathy Kraninger, but the agency is far from dormant.
Over the last couple of years, most enforcement actions by the Bureau have not focused on mortgage originators. However, on June 5th, the CFPB levied a $1.75 million fine against one of the largest mortgage lenders in the country for HMDA violations. This is the exact amount that the CFPB fined Nationstar in 2017 for its HMDA violations — which was the largest HMDA fine ever issued by the CFPB at the time.
Although both cases involved different lenders and violations, there are some valuable lessons we can learn.
In 2017, the CFPB announced that "for HMDA data collected in 2018 and reported in 2019, the Bureau does not intend to require financial institutions to resubmit data unless data errors are material, or to pay penalties with respect to data errors."
Some HMDA filers were under the impression that the CFPB would not be taking HMDA as seriously as in the past. However, that turned out not to be true. In both previous enforcement cases, each institution had what could be considered "material errors" or errors that made up a statistically significant portion of their data that was outside the norm. In both cases, material errors or invalid data were submitted to the Bureau over multiple years.
Data Examined from Multiple Years
As shown in both enforcement actions, HMDA data was analyzed over multiple years. Regardless of whether you submit data during a regulatory roll-back or uptick period, the quality and accuracy of your data matters. What you submit today can be flagged years later, and you will be held accountable.
Overriding Internal Controls
Despite having controls in place for detecting invalid or missing data, employees can still find ways around these controls. In this most recent settlement, the lender had business rules in place to stop applications from processing if data was missing. To override these rules, some employees were instructed to select non-Hispanic white for ethnicity and race when the applicant did not provide GMI information. Whether or not the supervisor giving these instructions knew the ramifications of this decision is unclear, but all employees should be educated on the severity of submitting incorrect data.
Regulators can now instantly analyze your HMDA submissions for disparities and errors. So, you need to know your data better than the regulators. The benefit of standardized reporting is that you have the same ability to see what regulators see. Running statistical analysis and even comparing it to previous years should uncover patterns in your lending. Any abnormalities should be investigated and brought up to management. Comparing yourself to your peers can provide a valuable perspective and inform you of your market performance.
Hopefully, by analyzing the two most recent HMDA enforcement actions, you can see that data integrity matters. If you're looking for a solution to reduce the amount of time you spend on processing and submitting your HMDA data, check out HMDA RELIEF. We've helped thousands of lenders submit their data to the CFPB.