HMDA and Accuracy of Data Subject to Partial Exemption

Issue/Inquiry

The Bank is eligible for a partial exemption from Home Mortgage Disclosure Act (“HMDA”) reporting requirements. Is the Bank responsible for the accuracy of information collected but not reported?

Response Summary

A financial institution that is eligible for the partial exemption is not required to collect, report, or record certain HMDA data points. Rather, the data in the quarterly HMDA Loan Application Register (“LAR”) will only include data that the Bank is required to record, unless it is voluntarily reporting data that would otherwise be exempt, in which case the Bank will record the data being reported. In either case, if the data recorded in the quarterly HMDA LAR is incomplete or inaccurate, the completion or correction of such will be made in the annual HMDA LAR. The accuracy and completeness of the data submitted in the annual HMDA LAR must be certified as complete and accurate by an individual in the financial institution who is knowledgeable regarding such data and authorized to provide such certification. The testing by federal examiners will be based on a selection of entries from the HMDA LAR.

Response Detail

Under Regulation C, which implements HMDA, an insured depository institution or insured credit union is not required to collect, record, or report 26 of the 48 data points required for covered closed-end mortgage loans or open-end lines of credit that it receives applications for, originates, or purchases if the institution:

• Originated fewer than 500 closed-end mortgage loans in each of the two preceding calendar years (to qualify for the closed-end mortgage exemption)
• Originated fewer than 500 open-end lines of credit in each of the two preceding calendar years (to qualify for the open-end line of credit exemption). 12 CFR 1003.3(d)(2).

Data on the HMDA LAR that is subject to the partial exemption rule is reported as Code 1111 (“Exempt”). CFPB, Reportable HMDA Data: A Regulatory and Reporting Overview Chart for Data Collected in 2019.

The partial exemption is not available to a financial institution if it received a rating of “needs to improve record of meeting community credit needs” during each of its two most recent Community Reinvestment Act (“CRA”) examinations, or a rating of “substantial noncompliance in meeting community credit needs” on its most recent CRA examination. 12 CFR 1003.3(d)(6).

When the partial exemption rule was published, the Consumer Financial Protection Bureau (“CFPB”) acknowledged that whether a partial exemption applies to a financial institution’s lending activity for a calendar year depends on its origination activity in each of the preceding two years, which may not be determined until just before data collection must begin for that calendar year. It also acknowledged that some insured depository institutions and insured credit unions may find it less burdensome to report all the data, including the exempt data points, rather than separating the exempt data points from the required data points, especially if their loan volumes fluctuate above or below the threshold from year to year. 83 Federal Register 45325, 45331.

Consequently, a financial institution eligible for a partial exemption may collect, record, and report optional data for a partially exempt transaction as though the institution was required to do so. 12 CFR 1003.3(d)(4)(i). This means that a financial institution eligible for a partial exemption has the option of reporting exempt data fields as long as it reports all data fields within any exempt data point for which it reports data. 83 Federal Register 45325, 45325.

Regulation C requires a financial institution to record the data collected on a HMDA LAR within 30 calendar days after the end of the calendar quarter in which final action is taken (such as origination or purchase of a covered loan, sale of a covered loan in the same calendar year it is originated or purchased, or denial or withdrawal of an application). For an institution that is not subject to quarterly reporting requirements (i.e., an institution making fewer than 60,000 covered loans and applications a year), the quarterly HMDA LAR must be made available to the institution’s federal regulator upon request. 12 CFR 1003.4(f); Official Interpretations, 1003.4(f) – 3.

If a financial institution makes a good faith effort to record all data fully and accurately within 30 calendar days after the end of the calendar quarter, but some data is inaccurate or incomplete, then the inaccuracy or omission will not be considered a violation so long as the financial institution corrects or completes the data prior to submission of its annual HMDA LAR. 12 CFR 1003.6(a)(1).

These rules mean that the accuracy of the HMDA data turns on the data reported in the annual HMDA LAR. Since a financial institution that is eligible for a partial exemption will not be required to collect and record exempt data points, its quarterly HMDA LAR would include only those data points that the institution is required to collect and record. Likewise, the annual HMDA LAR will not record and report exempt data points, but only those data points that the institution is required to record and report. If a financial institution is eligible for a partial exemption, but is voluntarily reporting data points that would otherwise be exempt, then such data points will be collected and recorded in its quarterly HMDA LAR, as well as recorded and reported in its annual HMDA LAR. In either case, if data points recorded in the quarterly HMDA LAR are inaccurate or incomplete, the correction or completion of such will be made in the annual HMDA LAR submitted to the financial institution’s federal regulator.

A financial institution must submit its annual HMDA LAR in electronic form to its appropriate federal reporting agency by March 1^st of the year following the calendar year for which data is collected. An individual who is an authorized person and has knowledge regarding the submitted data must certify the accuracy and completeness of such. 12 CFR 1003.5(a)(1)(i).

Under the rules for federal examiners, HMDA transaction testing is based on a random number of entries selected from the financial institution’s HMDA LAR (Total Sample), for which the institution must provide the corresponding application or loan files. FFIEC HMDA Examiner Testing Guidelines.

This response is for informational purposes only and is not intended for legal guidance.

This entry was posted on Monday, June 29th, 2020 at 11:22 am.