New guidelines were released last week (August 23, 2017) for HMDA transaction testing. The guidelines explain the testing procedures and the error tolerance thresholds for resubmission of HMDA. Institutions in which a review reveals the amount of errors exceeds these tolerances will be required to resubmit their HMDA data.
The first step in a CRA/compliance or fair lending review for HMDA reporters is usually a HMDA data integrity review. The purpose is generally (2) fold:
(1) Test overall HMDA compliance.
(2) Test reliability of the HMDA data for fair lending purposes.
As for the first part, institutions with inaccuracies could be subject to civil monetary penalties for non-compliance. With respect to the latter point, an institution could be required to “scrub” and resubmit their HMDA data prior to analysis.
To understand the importance of the HMDA integrity review to a fair lending examination, the new guidelines suggest there is some discretion with regard to resubmittal to the extent errors noted impacted fair lending.
For example, under point (7) under “Testing Procedures” of the new guidelines include that resubmission may be required even if the errors noted do not exceed the tolerance if the errors would likely make analysis of the HMDA data unreliable. Secondly, under point (8), resubmission may be requested if it were discovered that some reportable applications were left off the HMDA LAR.
In addition to providing specific error tolerance thresholds based on the volume of HMDA LAR entries, the guidance also clarifies that some minor errors are not included in the error counts. This includes rounding errors for loan amount and income and applications for loan amounts of $1,000 or less.
The new guidelines can be obtained by clicking here: