The Home Mortgage Disclosure Act (HMDA) is a federal law that requires lenders to report certain information about their mortgage loan applications to appropriate authorities. This regulation applies to banks, savings associations, credit unions, or other institutions that make residential mortgage loans. The primary purpose of HMDA reporting is to help identify potential discriminatory lending practices.
From a lender’s perspective, the HMDA data helps determine whether they’re serving their communities in a way that meets the needs of consumers. For example, if a lender sees that minority applicants are being denied loans at higher rates than white applicants, they may use this information to examine their policies and procedures to determine why this might be happening and provide solutions accordingly.
In addition to helping financial institutions enforce fair lending laws, HMDA data can also be used by government regulatory agencies, civil rights groups, investors, researchers, and others who want to study how mortgage lenders serve communities. The government uses HMDA data to ensure that banks aren’t discriminating against minorities, while consumer advocates use it to look for red flags in the market. Banks use it to monitor their own performance and make sure they’re not missing out on any opportunities.
For smooth compliance with the HMDA rules, the Federal Financial Institutions Examination Council (FFIEC) provides regulatory guidance for mortgage lending institutions. These include requirements for institutions to report their HMDA data through the HMDA-LAR.
HMDA reporting is the process of collecting and reporting home mortgage data. It is required by the Home Mortgage Disclosure Act (HMDA), which was created by Congress in 1975 to help understand the nature and extent of residential lending activity. HMDA requires lenders to collect and report information about their mortgage originations, applications, and denials.
The Consumer Financial Protection Bureau (CFPB) collects and analyzes HMDA data from lenders in metropolitan areas across the country. The CFPB also publishes reports summarizing the results of its analysis of HMDA reports.
According to the HMDA, financial institutions are required to record data on applications and purchase of mortgages on a form called the ‘‘HMDA-LAR.’’
What is HMDA-LAR, and what information do you need?
HMDA-LAR stands for Home Mortgage Disclosure Act, Loan Application Register. It is also simply called LAR in the banking industry.
The LAR form contains where to provide detailed information about property characteristics, borrower characteristics, and mortgage characteristics. It includes information about the applicant’s race/ethnicity, sex, income, and other information that may be considered discriminatory by some under the Equal Credit Opportunity Act (ECOA). It also includes information about property value, loan origination volume, loan purpose, loan term, prepayment fines, etc.
The Federal Financial Institutions Examination Council (FFIEC) provides the HMDA LAR formatting tool to help financial institutions record and submit their HMDA data.
When must HMDA-LAR be submitted to the government?
Consumer Financial Protection Bureau (CFPB) requires each credit union to submit a Home Mortgage Disclosure Act (HMDA) report for the previous calendar year by March 1. So, each year, a financial institution must submit HMDA-LAR accompanied by a transmittal sheet to its supervisory agency.
The transmittal sheet contains statistical information about the number of loans made during the previous calendar year. As part of this annual requirement, financial institutions must also submit any corrections made to previously submitted data within 30 days after such corrections have been made. The purpose of the LAR is to provide information about mortgage loan originations and high-cost loans in a specified geographic area, as well as information about the race, ethnicity, and gender of applicants for those loans. This information is then used to determine any possible discriminatory lending practices in that area.
Who can use HMDA-LAR?
Any mortgage lending institutions that have been approved by the Federal Reserve Board to submit HMDA data through HMDA-LAR may use it. Lenders can run reports independently or ask their vendors to do so.
What are the three purposes of HMDA?
When the authority to write the HMDA was transferred to the Consumer Financial Protection Bureau in 2011, its purpose was redefined as three points. It specifies that the regulation will help:
- in determining whether financial institutions are serving the housing needs of their communities;
- public officials in distributing public-sector investments to attract private investment to areas where it is needed;
- and in identifying possible discriminatory lending patterns.
The latest version of the HMDA rule went into effect in 2020. Known as the 2020 HMDA Final Rule, it amends the 2015 HMDA reporting requirements by adding new data elements, clarifying existing data elements, providing additional guidance on how to report certain items, specifying when records should be submitted to regulators, and making other technical changes.
The 2020 HMDA Final Rule particularly increased the permanent threshold for reporting data about open-end lines of credit from 100 to 200. This makes it easier for smaller lenders and community banks to report these data elements without applying for an exemption from reporting them. However, in response to a court verdict in 2022, changes were made to the 2020 HMDA Final Rule. While rules related to open-end loans were kept, the court raised the threshold for HMDA reporting from 25 closed-end loans to 100 closed-end loans.
In order to comply with HMDA requirements, you will need to set up a process for collecting this data from your customers. If you are not already collecting this information on your loan applications, you should consider doing so now because it can save you time and money in the long run.
- Building and/or managing your HMDA program
- Assisting with navigating HMDA regulations and reporting requirements
- Performing data validation scrubs
- Preparing your bank, credit union, or lending company to submit your LAR, pass the initial examination, or resubmission the audit.
- And discussing a customizable plan for your needs.
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