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Analysis of required Home Mortgage Disclosure Act reports can help avoid regulatory issues and provide direction for strategic expansion
The March 2014 NCUA Report included an interview with Matthew Biliouris, deputy director of the National Credit Union Administration’s Office of Consumer Protection. In this interview, the quality of data collection under the Home Mortgage Disclosure Act is identified as a top priority for credit unions in 2014 and beyond.
Passed in 1975, the Home Mortgage Disclosure Act requires financial institutions, including credit unions, to maintain and annually disclose data about home purchases, home purchase pre-approvals, home improvement, and refinance applications involving one- to four-unit and multi-family dwellings. (The criteria are available on the FFIEC website.) For 2013, HMDA requires an institution of $42 million in assets or greater as of December 31, 2012, to report certain loan transaction data to its regulating agency and the public.
1989 amendments to the regulation added the requirement to collect and disclose applicant and borrower characteristics to assist in identifying possible discriminatory lending patterns and enforcing anti-discrimination statutes.
In 2004, another amendment was added to identify higher priced loans. The amendment applies to home purchase loans, refinancings, or dwelling-secured home improvement loans, requiring lenders to report the difference between the annual percentage rate and the applicable average prime offer rate if the spread is equal to or greater than 1.5 percentage points for first-lien loans or 3.5 percentage points for subordinate-lien loans.
Credit unions will want to do a good job with HMDA data collection to avoid examiner scrutiny. The 2013 NCUA Annual Report released on May 12, 2014 mentions the number of credit unions examined in 2013 and the amount of time spent by NCUA during the exam process. Pro-active self-assessments and HMDA data analysis can help credit unions identify possible outliers and prepare for NCUA exams.
“… accurate HMDA data is essential to a credit union performing a sound fair lending analysis as part of a compliance management program,” Biliouris says in the NCUA Report article. “If a review of a credit union’s HMDA report indicates its lending practices fall outside the normal range for pricing, denials, withdrawals or loan terms when compared to other credit unions, these disparities will be designated as the focal points for review during the on-site examination.”
Besides making examiners happy, credit unions can learn a lot about how well they are serving their members and communities by studying HMDA data.
Some credit unions don’t realize their HMDA data can paint a picture of their overall lending program. Sometimes the picture isn’t the one the CU wanted to paint, and it can take a long time to change lending practices and move the dial. It’s important to keep in mind that the picture painted is only as good as the data studied.
Additionally, community lending and housing advocates rely heavily on HMDA data, which is public information.
Using HMDA data in annual self-assessments can be hugely beneficial for credit unions. For example, HMDA data can help ascertain where credit unions are lending, the demographic make-up of the borrowers served, and how well the CU is serving certain populations. Aggregate HMDA data can be used to identify differences in lending performance, including the distribution of different loan products, among credit union peers.
HMDA data can also point to opportunities for lending growth, by helping CUs based on income and minority make-up that might be emerging markets worth expanding into. This can be done using automated software tools that aggregate HMDA data and census demographic data to allow credit unions to run reports based on area demographics as well as lending patterns in specific geographic areas.
In sum, HMDA data analysis is extremely valuable to credit unions. Whereas the data can help identify strengths and weaknesses for regulatory scrutiny, it can also show credit unions places they could expand their business and build awareness in their communities.
Dana Ginsburg manages customer relations at ComplianceTech. She advises and trains clients on how to analyze data using automated fair lending software solutions.
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