What Do Tax Season and HMDA Reporting Have in Common?
The short answer is everyone waits until the last minute to submit their files. For example, “In 2015, 21.5 million Americans or 1 in 7 filers waited until the last week before the deadline to file their tax returns,” according to the IRS. Historically (based on our volume of support calls) a large percentage of HMDA filers also wait to submit their HMDA data until the last two weeks of February.
There are some more similarities between the two. Both taxes and HMDA are submitted annually and require data from the previous year. Failing to report accurate data can cost you time and money if you need to resubmit—and too many mistakes can bring extra scrutiny via an audit by the IRS or an examination by your institution’s regulator.
So how does one avoid the last-minute panic of filing taxes or HMDA data? It all comes down to preparation. If you wait until the last minute to run HMDA checks, you could spend a long time fixing all of your errors.
The new HMDA rules require nearly three times the amount of data to be collected. When institutions submit their HMDA data there are now 10x the possibility of errors. With error codes having all new designations and multiple conditions, 2018 submissions due in 2019 are going to take more time than ever before. You need to prepare your compliance systems now to ensure you are collecting the right data and it remains error free. Compliance RELIEF will allow you to scrub all of your loan data and perform group edits and batch geocode your loans.
However, if you check for compliance errors throughout the loan origination process, your data will have very few errors when the loan closes. Using software like Compliance EAGLE or Instant HMDA allows you to run loan-level checks during any stage of your workflow. By running compliance checks at the loan-level, you not only save time when it comes to submitting your data to regulators, but you can also be confident that your loan will sell on the secondary market to investors.
If you do not run compliance checks early, you may be forced to buy back a loan that was originally sold with a compliance error. It’s conceivable that a $20.00 fine could end up costing you thousands of dollars if you have to buy the loan back.
Just like with taxes, no one wants to have to go back and pay penalties for something that could have been avoided. Having a proper audit trail of compliance checks can show regulators that you made a good faith effort to comply with regulations. This is especially relevant for 2018 submissions due in 2019.
The CFPB released a statement in December saying “The Bureau expects that any supervisory examinations of 2018 HMDA data will be diagnostic, to help institutions identify compliance weaknesses, and will credit good-faith compliance efforts.” Incorporating pre- and post-closing compliance checks may seem like overkill, but it will save you from a fine levied by a regulator or cost you a buyback request.
As an individual, you probably don’t want to talk to the IRS, but if you’re targeted by the CFPB, it won’t be fun. Being proactive with compliance allows you to close loans quicker and be confident that your institution won’t be fined. Choose software that integrates easily with your LOS and workflow, and experience what it’s like to have a streamlined compliance program.