Wednesday, January 30, 2019


Chairman & Managing Director

Filing the HMDA LAR annually often seems like a Rite of Passage. Most filers vacillate between dread and certitude in their evaluation of the data integrity, let alone enduring the stress of submitting the report by the deadline. The acronyms HMDA LAR refer (of course) to the Loan Application Register (LAR) of the Home Mortgage Disclosure Act (HMDA or “Act”) and its implementing Regulation C (“Regulation”). By the way, the HMDA acronym is pronounced “hummda” – not “himmda”. Each year about this time, we get a lot of calls for HMDA support, especially in LAR preparation and filing. In the last few years, changes in filing requirements seem to have pushed filers to the point of reaching for the bottle (of Maalox). But the filing requirements are not that complicated, though they are now more involved in obtaining data and include partial exemptions (more on that later).

If you don’t think HMDA data is all that important except to the PhD’s at the Federal Reserve, you should spend some time with financial institutions who have undergone fair lending examinations. One of the first data sets a regulator asks for in a fair lending audit happens to be the HMDA LAR. The data is used to help identify possibly discriminatory lending patterns, and compliance with the Equal Credit Opportunity Act, the Fair Housing Act, and the Community Reinvestment Act. Inaccurate HMDA data can make it difficult for the public and regulators to discover and stop discrimination in home mortgage lending or for public officials and lenders to tell whether a community’s credit needs are being met. Yet I was told by a senior executive that there is nothing to be concerned about these days, given that under the current Administration there has been a reduction of regulatory enforcement. The same person told me that regulators have been advised to go easy on examinees. So, that means you can get away with lowering the compliance bar. After all, less enforcement means less worries, right? Wrong!

The bird of compliance flies on two wings: examination and enforcement. Examination is intrinsic to supervision; and enforcement is intrinsic to ensuring implementation of the regulatory framework. If an examiner finds violations and defects, administrative actions can ensue. If you want to be a test case, go ahead, tempt the devil, see what happens! In compliance, virtually all transactions and policies leave tracks. If “don’t get caught” is your game plan, I am going to tell you straight-out that you will get caught. Any creditor that fails to comply with a requirement imposed by the Act or the Regulation is subject to civil liability for actual and punitive damages in individual or class actions.[i] Violations of the Act or the Regulation also constitute violations of other federal laws. The civil monetary penalties can be onerous! Last year a financial institution was ordered to pay a civil money penalty of $1.75 million for persistent and substantial reporting errors.[ii] Liability for punitive damages can apply only to nongovernmental entities and is limited to $10,000 in individual actions and the lesser of $500,000 or 1 percent of the creditor's net worth in class actions.[iii] There is not only equitable and declaratory relief but also the awarding of costs and reasonable attorney fees to an aggrieved applicant in a successful action.[iv] Still want to tempt the devil?

When it comes to HMDA, a financial institution must make a good faith effort to record all data concerning covered transactions fully and accurately within 30 days after the end of each calendar quarter.[v] The concept of “good faith” is a feature of many statutes, but the notion comes down to a simple idea: if you operate on the basis of a positive commitment to fulfill the terms and spirit of a regulation, yet despite doing so you still had some defects in implementation, regulators will take this into consideration in determining administrative actions. How would you prove such good faith? Just show the regulator the compliance tracks which support your actions and best efforts.

A financial institution is not required to record all of its HMDA data for a quarter on a single LAR. Instead, an institution may record data on a single LAR or may record data on one or more LARs for different branches or different loan types (such as home purchase loans, home improvement loans, and loans on multifamily dwellings).

A financial institution may maintain its quarterly records in electronic or any other format, provided it can make the information available to the regulatory agency in a timely manner upon request.[vi]

Whatever the case, institutions must submit their LARs to their regulatory agencies by March 1st following the calendar year for which they are reporting.[vii] The required data requested on the LAR must be entered for each loan origination, each application acted on, and each loan purchased during the calendar year.[viii] An application must be reported in the year when final action is taken. Originations must be reported in the year they close; if an application has been approved but not yet closed, it must be reported the next year.[ix]