HMDA EXAMINER TRANSACTION TESTING GUIDELINES

The Federal Financial Institutions Examination Council (FFIEC) recently issued FFIEC Home Mortgage Disclosure Act Examiner Transaction Testing Guidelines (guidelines). Examiners will use the guidelines to assess the accuracy of data that institutions collect and report under the Home Mortgage Disclosure Act (HMDA). The guidelines, which apply to data collected and reported beginning in 2018:

  • Describe the data sampling process and explain how examination staff go about determining whether errors in each data field reviewed exceed a specified threshold.
  • Establish tolerances for minor errors in certain data fields involving dates or dollar amounts. Data that fall within these tolerances do not count toward error thresholds.

Sampling Issues – The size of the sample identified for review is determined by a financial institution’s mortgage lending activities— that is, the number of files sampled and the error threshold for resubmission will vary based on the number of applications listed on an institution’s Loan Application Register. The sampling procedures appear to have a disproportionate effect on small lenders. For example, a bank that makes only 50 mortgage loans is subject to having 30 files reviewed, whereas a bank that originates more than 100,000 loans will have only 159 files reviewed.

When examining financial institutions, the federal supervisory agencies may verify the accuracy of HMDA data within a sample of reported transactions. If examiners find that the number of errors in the sample exceeds certain thresholds, an institution will be directed to correct and resubmit its HMDA data.

The Guidelines:

  • Eliminate the file error resubmission threshold under which a financial institution would be directed to correct and resubmit its entire Loan Application Register (LAR) if the total number of sample files with one or more errors equaled or exceeded a certain threshold
  • Establish, for the purpose of counting errors toward the field error resubmission threshold, allowable tolerances for certain data fields
  • Provide a more lenient 10 percent field error resubmission threshold for financial institutions with LAR counts of 100 or less, many of which are community banks and credit unions

The Guidelines ensure HMDA data integrity by maintaining field error resubmission thresholds that safeguard the accuracy of each data field, and thus all data, reported under HMDA. Furthermore, under the Guidelines, examiners may direct financial institutions to change their policies, procedures, audit processes, or other aspects of its compliance management system to prevent the reoccurrence of errors.

The Guidelines represent a joint effort by the Consumer Financial Protection Bureau, the Federal Deposit Insurance Corporation, the Federal Reserve Board, the National Credit Union Administration, and the Office of the Comptroller of the Currency to provide—for the first time—uniform guidelines across all federal HMDA supervisory agencies.

No immediate action is required based on this news. The guidelines should be considered as audit procedures are finalized.

A copy of the Guidelines is available at: https://s3.amazonaws.com/files.consumerfinance.gov/f/documents/201708_cfpb_ffiec-hmda-examiner-transaction-testing-guidelines.pdf

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