For many years, we reported the income specifically used in the credit decision according to HMDA Reg. However, our Internal Audit Department said they had a conversation with a specific regulator a couple years ago, and they say it was communicated to them that the income reported on the HMDA LAR must be 100% reconcilable with documentation in the file if the application reached a point where income was said to be fully verified. Because of this, the expectation was that all income amounts reported on the HMDA LAR where income was fully verified must be calculated correctly and reconciled to documentation in the file 100%. Issues arose when the income relied upon in making the credit decision was calculated incorrectly. Examples: grossing up income incorrectly or inconsistently, transposition of numbers, incorrect payment frequency, etc. The expectation is that we and the lines of business correct the income calculations and change the amount reported on the HMDA LAR after the fact, regardless of whether or not that was the amount used in the credit decision. As you can imagine, while we agree with the spirit of what they are saying, there has been push back from us and the lines of business as to it's applications to what is reported on the HMDA LAR. While we do see such discrepancies as issues (ATR/QM), we do not see the issues as lying in the realm of HMDA. As a matter of fact, we feel their expectations are asking us to report incorrect income amounts that should NOT be reported on the HMDA LAR as they were not what was used in the credit decision. Please...I welcome all feedback.

Your Internal Audit Department is all wet. You reported the income that was used for the loan approval process. Whether that income has been verified, has not been verified, or verified incorrectly, it is still the income used in the credit decision.

Does incorrect verification of income have the other implications that you mentioned - sure and probably more. But that error has no impact on HMDA reporting however.