January and February are a magical time in the mortgage industry.  Beyond bad weather, license renewals, and typically low mortgage volume, lenders must contend with their annual Home Mortgage Disclosure Act (Regulation C; “HMDA”) filing.   

The deadline for HMDA filing each year is March 1 and the penalties for non-filing or for errors can be very expensive.  Error corrections up to complete resubmissions of HMDA data may be required, or, in egregious cases, civil money penalties. 

One of the services offered by The Commonwealth Group is a scrub of a lender’s HMDA data to verify the accuracy of the HMDA submission prior to submission to the regulator.  The most common error that Commonwealth finds relates to demographic information.  Demographic information is required for all loan applications and must include Race, Sex, and Ethnicity information for all borrowers.  This information must be provided by the borrower or by the lender based on appearance or surname.  It does not matter how the loan application data was received, whether a face-to-face interview, a phone conversation, or by internet application, the demographic information must be supplied. 

Confusion occurs when a borrower does not wish to supply the information to the lender.  There is a box on the Uniform Residential Loan Application (“URLA”) where the borrower may decline to supply the necessary information.  It is ok if the borrower does not wish to supply, however, that does not relieve the lender from the responsibility of reporting the race, ethnicity, and gender to their regulator.  The lender must rely on the appearance or the surname of the borrower to provide the information. 

But what to do when the application was received either by phone, internet, or mail rather than face-to-face? The lender still must report.  If the borrower’s last name is a common Hispanic name for example, the lender can report the ethnicity of the borrower and indicate on the application that the lender entered the ethnicity based on the surname.  Even if the assumption is incorrect, the lender has carried out the requirements of HMDA. 

But what about the borrower’s race?  Can this be determined by the surname?  Obviously not.  However, if the borrower submits photo identification (as required by the Patriot Act), the race determination can be based on the appearance of the borrower, whether by photo on the identification or even by the statement of the race (if it appears) on the identification.  The same applies to the borrower’s sex.   This can usually be determined by the appearance of the borrower.  Once again, even if the information is not correct, the lender has carried out the requirements and not subject to an error from their respective regulator. 

About the only situation where the information would not be available would be on loan applications which was closed for denied, closed for incompleteness, or withdrawn prior to the receipt of a photo identification.  However, the information on ethnicity should still be supplied based on the borrower’s surname.  Applications where no information is supplied is a red flag for regulators to carry out further review. 

The regulators take demographic information very seriously.  If loan production staff is either untrained and does not ask for the information or worse, knowingly omits the data.  Bank of America received a fine from CFPB for $12 million for reporting false information (CFPB Orders Bank of America to Pay $12 Million for Reporting False Mortgage Data | Consumer Financial Protection Bureau).   

Commonwealth strongly recommends all lenders conduct a full review of all HMDA data prior to submission for accuracy and completeness.  While it can be more work for the lender, the penalties for non-compliance will far exceed the costs of getting it right. 

If your company is concerned about the accuracy of your HMDA submission or is in need of a review of prior HMDA submission, contact us today.  The Commonwealth Group still has limited availability for a complete HMDA review of 2024 data prior to the HMDA due date of March 1.  Please contact Curtis Person at cperson@thecommonwealth.net for further information and scheduling. 

West Beibers, CMB, AMP, CRU 

CEO 

The Commonwealth Group