As the submission March 1 deadlines loom for annual CRA and HMDA data reporting, Compliance Officers can sometimes feel a bit lost in the woods. While the details of filings are always important, it’s critical to take the time to pick your head up and look at your data at a macro level. This past year there has been a renewed focus by regulators to ensure financial institutions submit good, clean and logical HMDA and CRA data. In today’s blog, our experts outline some quick common-sense data checks that will strengthen your data reporting processes and ensure your submitted data is complete and cohesive. The guidance shared here can be coupled with required regulatory edit checks to ensure an accurate submission that reflects the lending of your institution. 

CRA Tips

1. Evaluate the volume of unknown revenue (CRA Field Revenues = NA) in your file. Some institutions set tolerances of 5-10 percent for unknown revenue, however if reporting increases beyond these thresholds, processes and procedures should be established to improve revenue data collection. It's important to note that while reporting such data is a permissible reporting option, higher volumes of unknown revenue can adversely affect CRA exams by giving the impression the bank is not lending to small businesses.

2. Consider the alignment of your data with your bank’s Call Report. We recognize CRA data is going to reflect only originations and purchases from the reporting year and the Call Report includes all outstanding loans in the bank’s portfolio. However, there should be some alignment between the submission file and Call Report. For instance, if you have small farm loans on your CRA loan register, there should be small farm loans on the bank’s Call Report. Misalignment between CRA data and the Call Report could suggest call coding or CRA loan coding errors, both of which would increase regulatory scrutiny or require data resubmission.

3. Evaluate the total dollar volume of your lending and confirm your submission file reflects the requirement to report loan amount rounded to the nearest thousand. Errors in this requirement can be detected by considering the total amount of loans being reported. Does the volume reflect your understanding of your annual dollar volume? Accurately reporting your loan amounts is important for CRA exams and peer analysis. Ensure that your submission software accurately keeps the loan amount of every CRA record in thousands of dollars for submission.

4. Evaluate the proportion of loans inside the bank’s assessment areas versus outside. Ideally, the bank’s assessment areas contain a substantial majority of the bank’s loans. While this is not defined in the 1995 CRA Rule, an institution is welcome to set their own thresholds for this figure. If a significant portion of loans are outside the bank’s assessment areas, the area delineations should be reevaluated. Additionally, it's important to note that CRA reporting requires reportable loans outside the bank’s CRA assessment areas to be reported. Out of assessment area loans should not be excluded from reporting and if you find they have been, now is a good time to improve processes to capture these loans. 

5. Similar to ensuring you have reported loans both inside and outside the bank’s assessment areas is the requirement to report loans even when borrower revenue is greater than $1 million. Run examiner borrower distribution tables to ensure the volume of lending to businesses with revenue greater than $1 million mirrors the institution's business. Most institutions will have some volume of lending to businesses with revenue greater than $1 million. If your data suggests all businesses had revenue less than $1 million, this may appear favorable for performance but likely suggests errors in the population of loans reported.

6. Make sure that the address on file for every small business and small farm CRA reportable record is accurate and produces a valid geocode. In recent years examinations have focused on the errors in geocoding and this can also affect your inside/outside assessment area ratios. Moreover, since these are originations and purchases, ungeocoded or partially geocoded records should be rare.

HMDA Tips

1. Conduct appropriate omissions testing to ensure you have captured all reportable transactions and confirm you are not inadvertently excluding loans. Your institution should have a rigorous process for determining what constitutes a HMDA reportable loan and all required loans must be included in your annual filing based on the action taken date. Reconciling should include reviewing your current pipeline to ensure all loans have been adequately actioned in the year in which they occurred. Make sure there are no lingering files with valid withdrawal comments, or even leads that were full applications needing appropriate action taken. Additionally you should utilize available reports from your loan origination system to reconcile record counts from your system to the total records on your LAR.

2. Ensure all regulatory edit checks have been audited. While validity edits must be corrected prior to submitting data, (the submission portal will reject any file where this type of edit exists) filers still need to pay particular attention to the quality edits and ensure this data has been reviewed and validated. The data triggering these edits is indeed submittable, however it is raising a flag the regulators believe to be worthy of a second look. Make sure the data triggering these edits is accurate before submitting and be prepared to provide an explanation.

3. Review your address field for potential errors in formatting. Last spring many institutions received a notice from the CFPB warning that their LAR may contain “invalid entries” in the address field. These errors included reporting multiple addresses, multiple property numbers, missing information or place holders, non-standard addresses, and other potentially invalid data. Since there continues to be no official 2023 HMDA edit check to catch these errors, it is up to the institution to use any tools available to catch these.

4. Look for anomalies in your data concerning both formatting and appropriate usage. While certain fields may allow reporting “Not Applicable” (NA) or even 0 as a value, make sure the usage of this value is appropriate for your institution. Certain data points may be permissible and appear reasonable, however a second look is often necessary to ensure it is in fact accurate. For example:
   1. Are there originations with 0% interest rates? While possible, it is unlikely a loan was originated at 0% and these records can have significant impact on pricing disparity tests further down the line of Compliance testing. 
   2. Are the race, ethnicity and/or gender fields partially marked NA where other information was provided? While this is valid if such records represent more than 10% of your LAR you should examine/retrain collection of these GMI fields.
   3. Is your denial reason supported by the data? For example, if the record is marked denied for debt-to-income(DTI), is the DTI field marked NA?  Or do you have a significant portion of records marked as denied for “other” reason?  Do you have denial reasons for a loan that is not marked denied? 
   4. Are all loan amounts consistently in dollars?  Verify there are no system transfers retaining the pre-2018 logic causing this to be rounded to thousands.
   5. Are all incomes provided reasonable for the specific loans?  Some loan origination systems will not allow a 0 or NA for income, so manual workarounds such as using “0.01” can cause inflated debt-to-income(DTI) values.  Check how many records have very small incomes, such as less than a value of 10

5. Lastly, check to make sure your data makes sense for your institution’s products and practices. If your institution doesn’t have a preapproval program, make sure no loan actions have been reported with preapproval codes. If your institution does not offer second liens, or does not originate loans with combined loan-to-values over 100, check to be sure you are not reporting originations with this data. Do the common-sense checks to confirm all of your reporting is truly relevant.

It’s easy to lose sight of the forest through the trees during submission season. There are so many details to be mindful of and plenty of challenges at the application level that need to be attacked. But it’s important to take a step back and remember to look at the big picture. And most importantly, make sure to document and keep records of the lessons you are learning in these final days. Oftentimes final filing activities will reveal needs for process improvements and additional controls, but without documentation the swirl of submission can sweep away those valuable observations and gaps remain unplugged. Finally, just know that throughout the process, our RiskExec team stands ready to assist you. Don’t hesitate to reach out to us at riskexec@asurity.com.  

RiskExec is a reporting and analysis platform for CRA, Small Business Lending, HMDA, Fair Lending, and Fair Servicing. With RiskExec's compliance reporting and analysis platform financial institutions can automate CRA, Small Business Lending, HMDA, Fair Lending, and Fair Servicing processes and also use mapping for visualizing loan data with sophisticated geocoding and customizable layers.

Sarah Brons is Senior Vice President of CRA Products and Services at RiskExec. She has more than 20 years of experience in financial services and regulatory compliance. Sarah is an expert in community reinvestment and community development and leads CRA product development.

Jesse Taylor is Director of Compliance Products and Services at RiskExec. She has over a decade of experience in Compliance and has served in Fair Lending leadership roles at both depository and non-depository institutions with LAR filing and analysis responsibilities for HMDA, Consumer, Auto, and other types of lending and servicing activity.