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Current State of HMDA Reporting

August 25, 2014

When the Consumer Financial Protection Bureau (CFPB) proposed new rules to improve the Home Mortgage Disclosure Act (HMDA) reporting, it aimed to better collect data for enhancing transparency and promoting fair lending in the mortgage market. The proposed rules mainly expand the reporting requirements across wider range of loans that includes closed end loans, open-end lines of credit, and reverse mortgages.

Currently, HMDA data are reported by approximately 7400 financial firms on about 18.7 million loans and applications, according to Mortgage News Daily. The data collected has provided vital information with regards to housing trends, rooting out discrimination, and reaching underserved areas. Some industry experts believe that expanding the reporting scope will strengthen the scope of HMDA.  The additional information will provide regulators with a 360 degree view of all developments in the housing market, especially in areas such as underwriting and pricing. This will not only help regulators to investigate pain-points, but will also help them see opportunities to create more equitable housing policies.

Currently, lenders are concerned about the cost, complexity and data privacy of the new proposed rules. A recent survey by Mortgage TrueView found that many lenders make errors while reporting HMDA data, clearly indicating the fact that the industry grapples with data quality issues. Firms with large numbers of reported transactions are now required to report on a quarterly basis rather than an annual one, increasing operational and compliance costs for these lenders.

Although the CFPB is working towards aligning HMDA reporting with industry data standards, the task is far from being achieved. Major challenges in automating the HMDA database include creating standard integration interfaces with proprietary loan origination systems, as well as making sure that such integration does not expose proprietary processes.

 There has been a lot of talk about data privacy concerns over making the loan data available to public. Ballard Spahr, a law firm that closely tracks CFPB reforms, stated: “By combining HMDA data along with other publically available data, it is possible that the identity of specific consumers can be determined from the Loan Application Registers of mortgage lenders.”

CFPB and other industry participants should work together in developing an information filtering system that makes sure that sensitive customer data is only visible to lenders and regulators, rather than shared with the public.

With the mounting regulatory pressure for HMDA data reporting and the potential penalties associated with its reporting errors, it is vital for a firm to get its data gathering and reporting processes to be precise. The industry needs innovative technology tools that can make the reporting process workflows more efficient, ease the data formatting requirements and thus help firms prevent errors. 

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