VIDEO: Analyzing HMDA Data for Fair Lending
In this Compliance Clip (video), Adam discusses how the regulators are analyzing HMDA data for fair lending and explains why financial institutions should be analyzing their own data as well - even if they aren’t a HMDA reporter. This is a topic that was covered in our new Fair Lending Hot Topics program.
Video Transcript
The following is a transcript of this video.
This Compliance Clip is going to talk about analyzing HMDA data for fair lending purposes. Now, this is actually a topic that we discussed in our recent Fair Lending Hot Topics program. This is something that we have heard the examiners talking about, and it's something that I wanted to point out as a potential hot topic. In our Fair Lending Hot Topics program, we actually talked about what some examiners had said in a recent fair lending webinar. In that recent fair lending webinar, there was a representative from the NCUA who was providing tips on how to analyze HMDA data for fair lending concerns. Now, some of us may no longer be a HMDA reporter, but for those of you that it's extremely important that you are utilizing your HMDA data to analyze it and do an analysis with your peers. And in fact, in our hot topics program, we talked about how there are some concerns about conducting a fair lending analysis. So this is something that your organization really should be doing, especially if you’re a HMDA reporter. But if you're not a HMDA reporter, you could still be utilizing HMDA data to conduct an analysis, especially if you have branches in a metropolitan area or an urban area, big cities. We’re talking the biggest cities, of course, but even decent sized cities, because that's where a lot of the redlining risk that we're seeing is coming from.
HMDA data has been used, traditionally for quite some time, to look for redlining, and that's really where a lot of the concerns are at, especially as it related to this inter-agency webinar that we talked about in our Fair Lending Hot Topics program. What the representative from the NCUA said, is he said the focus was on analysis of approval and denial disparities and he explained that this could be done using simple spreadsheet analysis.
Sometimes it's extremely challenging because it feels like the regulators have these super nerds who specialize in statistical analysis and they know how to do all these with this data and they built software programs that can be passed down and they have all these resources in the regulatory agencies that your smaller financial institution really doesn't have access to. What the NCUA representative was saying is that you don't have to necessarily have that technology. A lot of these queries, you can just do using a simple analysis on a spreadsheet and just doing some very simple queries. They were reiterating that what’s really important for your organization to be doing is to be looking at your data and analyzing it. Now, if you're not a HMDA reporter, it may be a good idea to figure out how to compile some data so that you can compare it to your peers. Again, especially if you have branches in an urban area. It's really important if you're in an urban area, be analyzing your data in your lending, especially in those minority census tracts, that’s majority minority census tracts, and comparing that with your peers. That's what they were talking about there.
The biggest takeaway from this and from what the regulator said in the inter-agency webinar was that the regulators are now changing the way that they analyze HMDA data to of course include the new data points that we've been reporting on HMDA now for a few years. We knew about the changes that were coming up, we got ready for them, we collected, then we reported. Now that we have reported for a couple of years, the regulators are starting to analyze that new data. What that means is I see a potential future wave of fair lending issues coming from this new data. And this is something that if you are a HMDA reporter and you've not analyzed those new data points in your HMDA LAR, the new data points that have only been reported for a couple of years, you absolutely need to do this because there was quite a bit of risk there since this is new territory for HMDA reporters to be reporting this data that they've never reported before.
I could go into this in a lot of detail, but this is what I want to cover for our compliance clips ince these are supposed to be three to five minute short videos. So that's all I have for you for this Compliance Clip.
Just remember that it's really important to analyze your data when it comes to fair lending, and especially for you HMDA reporters. If you're not a HMDA reporter, you may want to analyze other peers who have HMDA data, figure out how to do that. There are a lot of consultants and even software firms out there that can assist you with that. So that may be something you want to look into, but it's definitely something you should pay attention to.
That's it for this Compliance Clip.