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HMDA 2018 is lurking in the shadows of the new year ahead and institutions are scrambling to keep up with all the ghouls and ghosts it brings with it. But what they’re not considering may be even harder to stomach.

Come March 2018, “people are going to be very surprised,” says Kathleen “Kitty” Ryan, Counsel at Buckley Sandler and the former Deputy Assistant Director for the Office of Regulations at the Consumer Financial Protection Bureau (CFPB), where she was responsible for completing two of the Bureau’s largest mortgage rules: the TILA-RESPA Integrated Disclosure and the HMDA amendments. In her current role, Kitty advises financial services clients regarding a wide range of regulatory and compliance matters, particularly those involving mortgage regulation and fair lending, such as the HMDA rules effective on January 1, 2018.

Here’s where the surprise begins. As the industry knows, the CFPB’s submission tool is soon getting a massive update with an improved submission process. In the past, the lending world has followed these high-level steps:

  • Submit HMDA LARs, hopefully without errors or omissions, to the CFPB by March 1.
  • Receive a report with errors identified within weeks.
  • Correct errors through an iterative process and ultimately submit a clean version weeks or months later.

With the impending submission tool update, those steps are shuffling. While the data collected in 2017 is unchanged, lenders will no longer be able to submit HMDA LARs until they are “clean,” or without errors. The new portal will technically block any data file in which those issues are detected. This significantly raises the bar of necessary quality for the March 1 submission, forcing institutions to resolve their toughest errors prior to the deadline - without the extra time to identify and fix them after submitting, as in the past.

Add on the new intake process for data according to the CFPB’s finalized HMDA 2018 rule changes, released later than anticipated this September, and you have a recipe for the perfect storm.

“These two major activities - testing the new accuracy of HMDA 2018 data collection requirements and preparing to submit the 2017 LAR - are going to collide in the midst of new troubleshooting,” says Kitty. “The same compliance officers in charge of preparing the 2017 submission will likely also be involved in testing the accuracy of new HMDA 2018 data requirements from Q4 and Q1.”

For institutions investing in capturing new data fields in January and February of next year, those same resources will be called upon in the event of a data scrubbing blitz for the 2017 LAR submission. This may become an exercise in patience and due diligence for those leading the charge, especially if their primary role is outside of HMDA, but stretching the team too thin leaves room for errors and oversight across the board.

“Nobody can do the impossible,” says Kitty. “But institutions can manage their resources and priorities to maximize outcomes in both the short and long terms.” 

In 2016, Kitty and Buckley Sandler Associate Sherry-Maria Safchuk penned an article for Law360 highlighting five tips to help institutions with the HMDA 2018 rule changes. Since then, recent changes and the proximity of the new year call for a recalibration. Now is the time for financial institutions to commit to laying the strategic, mental, and emotional groundwork for tackling HMDA 2018.

With the witching hour upon us, these updated survival tricks will get you through Q1 2018:

  1. Gather Resources. Reacting to the finalized HMDA rule changes will require more resources than previously expected.

    Educate board members and leadership on the upcoming challenges this submission season will bring. With the number of changes and unknown developments likely to trickle in, it’s important to be realistic about capacity needs and properly prepare to make the necessary adjustments.
  2. Communicate with LOS Vendors. When it comes to vendors, there is no such thing as over-communication. Contact all LOS vendors to discuss the impact of HMDA 2018 to ensure all data is properly recorded.
  3. Timing Is Everything. When the CFPB published the final HMDA rules in 2015, the general effective date was January 1, 2018. If there is an application opened in Q4 2017, with the possibility of closing in 2018, collect the new data fields now to avoid adjusting it later.
  4. Quality Over Quantity. The CFPB offers flexibility in allowing lenders to collect race and ethnicity data using the new format.  It is wise to experiment with GMI, but unwise if resources limit the ability to collect correctly.

    Focus on areas where you first expect to see actual success rather than attempting to  pilot data collection across multiple lines of business. Once success is achieved in one area, use it as a pilot to expand into other areas. Regulators will not be sympathetic to spoiled data collection that was attempted prematurely. 
  5. Pick Your Battles. Focus on the absolute priorities and work backwards. For example, don’t begin GMI collection early if there are outstanding issues related to required data points. Hit pause and assess the situation realistically, especially if resources are limited.
  6. Don’t Bite Off More Than You Can Chew. For many institutions, resources may simply not be up to the task of tackling every moving part so close to the effective date. With room yet for the Bureau to make more changes, leave some flexibility with which to react.  
  7. Have A Geocoder Backup Strategy. Rumor has it that the CFPB’s new geocoder tool, which will allow users to plug a correct street address into the tool and receive a safe harbor, may not be available by January 1, 2018, as previously expected. Institutions should plan a backup strategy in case it’s delayed until February.
  8. Don’t Depend on Freddie and Fannie. They have yet to greenlight the new Form 1003, despite anticipation that approval would coincide with the HMDA changes. Plan accordingly for continued uncertainty in this regard. 

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