It's Beginning to Look a Lot Like HMDA
It's time. The Christmas or seasonal decorations have gone up and that means that HMDA reporting is just around the corner. You need to get two important projects going.
The first project is to check the quality of your HMDA data. Make sure that it is correct, complete, and properly formatted. This is something that the techies can manage with support from a few staff proficient in HMDA-speak. The regulatory agencies have made it clear that they want and expect this LAR submission to be complete and accurate. They have also said they will impose civil money penalties for errors. So start working now to get it right.
The second project is more daunting and more important. You need to know what your HMDA data shows. You need to know this now because it is already time to be working on damage control, also known as HMDA information management. The biggest question (other than civil money penalties, of course) is what sort of story your HMDA data will tell. You need to be prepared for that and for the many and varied versions of the story that others, such as the press, will use your data to tell.
First Look at the LAR:
- Geography: Know where you are lending. This means doing an analysis of your loans by loan type and by location.
- Look for the numbers and ratios of loans in minority and non-minority census tracts.
- Then look for any products that are not sufficiently represented in minority locations.
- Compare these findings with what you know about the other lenders in your market. If they are doing something that you are not, you have a problem.
- Compare loan locations with your branch locations and determine whether there is any problem caused by branch locations in or not in minority census tracts.
- Ethnicity: First, consider the demographics of your markets.
- If Hispanic populations represent any significant presence, look for your lending activity to Hispanics and compare this to lending to non-Hispanics.
- Now evaluate the types of loans, locations, and pricing that were made to Hispanics. Determine whether there are any differences.
- Compare your results to last year's numbers for all lenders in your market.
- Race: Again, begin with demographics to determine what possible discrimination could exist in your market.
Look separately at each racial group represented in your market.
- Compare lending activity by product and by race. Be sure to look at all aspects of your lending decisions, including approvals, denials, counter-offers and approved but not accepted.
- Compare your lending activity to the market's performance last year. If your numbers are not in the ballpark, it is time to start working on why.
- Pricing: Loan pricing is the hot issue. This is the first time we will have such information to work with.
- Begin with a careful review of your loan policies to establish the official word on loan pricing.
- Next, look at your pricing as shown in the LAR. Be sure to look separately at different types of loans such as first or second liens.
- Sort pricing by race, ethnicity, and gender to look for any patterns that could indicate illegal discrimination.
- For every question that you raise, or pattern that emerges, get answers now! Find out why any differences occurred.
Copyright © 2004 Compliance Action. Originally appeared in Compliance Action, Vol. 9, No. 13, 11/04
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