Credit Union Exam Solutions Presents With Flying Colors

Treichel: I just think it's important
for credit unions to understand, that

even though complying with HMDA can be a
chore, that there is a valid reason for

collecting the HMDA data, and that is
to try and ensure that mortgage credit

is offered and extended to everybody
based on mortgage related criteria.

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Hey, everyone, Mark Treichel
here again with another

edition of With Flying Colors.

I'm thrilled today to be
joined by Joe Goldberg.

Joe, how are you doing this morning?

Doing well, Mark.

Thank you for having me.

You got it.

You got it.

Well, Joe, for those people who may
have missed your first episode, could

you give us a little bit of a bio
on yourself, if you will, on what

you've done in the financial industry?

Sure, well, I retired this past
December 31st from NCUA after 8

years doing consumer compliance work
that includes fair lending and the

Home Mortgage Disclosure Act, which
we're going to talk about today.

I've been a lawyer for over 40 years.

I've taught consumer law, just done a
variety of things in the legal field,

including the financial regulation.

Very good.

Well, I'm thrilled to
have you as a guest today.

And as you mentioned, we're going
to talk about the Home Mortgage

Disclosure Act, also known as HMDA.

And so to start us off, maybe
you can give us a little bit

of a basic background on HMDA.

Sure, sure.

That's my intent is to really cover the
basics and provide an overview of the law.

Honda is a very highly detailed
area, so I'm going to talk about

resources that you can use to
jump into some of those details.

If your credit union is
required to comply with Honda.

To start off, if I would
ask listeners, what is HMDA?

I'm guessing a lot of them would say,
HMDA is a pain in the rear end or

it's something the government created
because they think credit unions have

nothing better to do with their time.

But after overseeing the NCUA's HMDA
program, I, you know, I get that.

But, you know, even criteria for if
you're covered by changes year to year.

So it's difficult in that respect,
but it does have a noble purpose.

When I talk about consumer laws, I like
to start with why they were created for

Congress made that very easy because
it put that right in the law itself.

So here's what HMDA says about itself.

First is the findings of Congress.

This is a quote from the law itself
that Congress finds that some depository

institutions have sometimes contributed to
the decline of certain geographic areas by

their failure pursuant to their chartering
responsibilities to provide adequate

home financing to qualified applicants
on reasonable terms and conditions.

Uh, that was the findings of
Congress and it goes on to the actual

purpose of HMDA and that is this.

The purpose of this law is to provide
the citizens and public officials of the

United States With sufficient information
to enable them to determine whether

depository institutions are filling their
obligations to serve the housing needs of

the communities and neighborhoods in which
they are located and to assist public

officials in their determination of the
distribution of public sector investments

in a manner designed to improve
the private investment environment.

So, that tells you why HMDA was created.

It has to do with the housing issues
that actually still are prevalent

in our country now, but it's to
help offset some of those problems.

HMDA goes back to 1975,
which is when it was enacted.

And so, as a result of that, we actually
have mortgage data, good mortgage

data, going back for over 45 years.

So, how does this kind of work?

What's it intended to do?

If the NCUA has a fair lending guide
on its website that's available to the

public, it has a good description of HMDA.

It says that HMDA was implemented
by Regulation C, as in CAT, requires

financial institutions, including
credit unions, To compile and disclose

data about home purchase loans, home
improvement loans and refinancing

that they originate or purchase or
for which they receive applications.

And the purpose, according to the manual
is to provide the public with data.

That can be used to help determine whether
credit unions are serving the housing

needs of their communities to assist
public officials and distributing public

sector investments to attract private
investment to areas where it's needed and.

Maybe most important to assist in
identifying possible discriminatory

lending patterns and enforcing compliance
with anti discrimination statutes.

So that's the general background on hum.

And we should probably take a
look now at what it covers who

has to collect and file the data.

What data must have be collected and filed
how and when it's supposed to be filed.

Yeah, there's a lot there.

You're a lot there.

And so you mentioned the fair
lending guide for the listeners.

We'll have a link in the show
notes where you can find that.

And so, Joe, some of the questions
you pose that we needed to ask.

So, who is it credit union wise that.

Must report and collect
come to data in 2022.

And maybe if you could also, I'll
do it, make it into a 2 parter.

You said it who's covered
changes every year.

So who's covered in 2022?

and how do the changes work?

All right, well, let's start with
the criteria for 2022 and these

are 4 criteria, all of which.

a credit union must meet in
order to be required to file.

So if you do one of the four, three of
the four, you're not required, you have

to meet all four of these requirements.

So the first one is what's referred
to as an asset size threshold.

That changes annually, but for 2022,
a credit union meets the asset size

threshold if the total assets as of
December 31, 2021, exceeded 50 million.

So that's the first thing if you're
over, if you're under 50 million and.

Close the book, go home.

You don't have to worry about it.

But if you are over 50 million
dollars in assets, then you'd

look to the 2nd criteria, which
is called the location test.

And that is that the credit union.

Also, in 2021, or as of the end of the
year, 2021 had a home or branch office

in a metropolitan statistical area.

That includes a branch office or
any location where accounts are

established or loans are made.

But are not included now,
how do you find that out?

Some of the resources that I'm going
to point you to, and that, as Mark

said, you'll have made available
to you after you listen to this.

They tell you how to determine.

If the credit union is in a
metropolitan statistical area.

So, again, the credit union meets
these 1st, 2 criteria, you move

on to the 3rd prong of this,
which is loan activity test.

So, if the credit union
originated at least.

1 home purchase loan, and that's
excluding temporary financing, like a

construction loan that doesn't count.

So it's 1 home purchase
loan or refinanced.

A home purchase loan secured
by a 1st, lean on a 1 to 4

unit dwelling during 2021.

And then finally, if you meet all
3 of those requirements, the last

1 is the loan volume threshold.

So, if the credit union
originated at least.

100 covered closed and mortgage
loans in each of the 2.

Proceeding calendar years.

And those would be 20 and 2020 and
2021 or at least 200 covered open end

lines of credit that are home equity
loans again in each of the 2 preceding

calendar years, 2020 or 2020 and 2021.

Excuse me.

So if you meet all four of those
criteria, you are required to collect

and submit HUDA data for 2022.

Question is, well, so,
so let me, let me Sure.

Um, kind of just make a
observational comment on that.

So I have a, a relationship with
a QSO that helps generate loans.

However, the credit union, as part of
that, gives the qso, you know, their.

Matrix on how they're going to decide
the credit decision, and it's it fits the

credit unions policy under that scenario.

It would be the credit union who
would submit it because again,

they're making the credit decision.

That's interesting.

I didn't realize that.

Yeah, there's some cities to that,
such as if the credit union does.

Give up its right to refuse.

It may be relying on the QC.

The QC may be the one.

I mean, it's not, it's not an easy thing
to characterize because again, a lot

of little details that you have to look
at to make sure you're in compliance.

It comes down to that.

It comes down to that
important legal word.

Well, it depends, right?

Yeah.

So it depends on the
facts of each situation.

Got it.

Okay.

That's helpful too.

Exactly.

All right, so you want to know what the,
what is the data that the credit unions

need to collect if they are required to.

So, it's data that comes from
applications and consummated loans,

and it's data that includes demographic
information about applicants and

details about the loans themselves.

I'm not going to get into what
they are, but there are 48 data

points that must be collected.

And of course, since nothing is
easy, some of those data points have

multiple data fields within them, too.

Some of the things that are covered
or that must be collected are loan

type, Loan purpose, loan amount,
action taken on the application,

property address, and rate spread.

Other items include ethnicity, race,
sex, age, income, and credit score.

Now, some of this demographic data
is collected via the Universal

Residential Loan Application.

Which is widely used in the mortgage
industry, especially by lenders

who sell their mortgage loans.

Fannie and Freddie use those applications.

So, generally speaking, they're used.

By most lenders got it.

So Joe, you mentioned all
these different items and data

sets that must be collected.

Are there any exemptions that
would either limit those the items

that need to be collected or any
exemptions that would impact credit

unions in in any particular way?

Other than that, because
this is under the answers.

Yes, there are some
exemptions important to know.

There are actually 2 separate
partial exemptions, and they relieve

some of the filers from having
to submit all 48 data points.

Generally, they're only required
to submit 22 of them if they are

subject to the partial exemption.

And not the other 26 data points.

So the first partial exemption is
for closed end transactions only.

So if the credit union originated fewer
than 500 covered closed end mortgages in

each of the two preceding calendar years.

It only has to report the 22 data
points for closed end transactions.

Now, that doesn't affect reporting
for the opened end transactions.

However, there is a separate partial
exemption for opened end transactions.

So, it's basically the same as.

The partial exemption for
closed end transactions or

the standards are the same.

If the credit union originated less
than 500 opened end transactions

that are subject to the reporting
for the opened end transactions

is only for the 22 data points.

And, of course, that does not affect the
reporting for the closed end transactions.

So there's separate exemptions.

Even though the standards
for each is the same.

Interesting.

Now, if the credit union is required
to collect and report data, it must

record it in what's called a loan
application register or LAR, L A R,

you'll hear that term in connection with
HMDA, and there is a requirement that

the financial institution subject to
HMDA update The law are within 30 days

of the end of each calendar quarter.

So, for example, for this year,
we're coming on the, um, what's

today when we're recording this
is close to the end of April.

So, very soon, the alarm must
contain all the transaction data for

January, February and March of 2022.

Now, except for some very large
institutions, I think there might

be just a couple of credit unions
that fall in that category.

That data is only collected and the
law is being updated and it's internal.

It's not being reported
until the end of the.

There are to the next, the
reporting date of March 1, 2023.

there is a requirement that
every quarter larvae updated.

And just so you're aware, the database
to which the data is submitted

will accept if they are kept format
that's compatible with the database.

So, that actually compiling
on a quarterly basis is a help

because it makes it much easier to
report the annual data when that.

Annual data is due.

It's like, uh, reconciling your bank
account once a month or once a year.

Exactly.

So I just going to say that I
just want to reiterate that the

actual submission is March 1st in
the year following the calendar

year that the day is collected in.

So, March of 2022, they
would have collected.

2021.

Correct.

Got it.

Right.

So, exactly.

And the data that's being collected
now in 2022 will be reported in 2023.

So, technically, the data is
submitted to the financial regulator.

So, for all federally
insured credit unions.

That includes state charters
that are federally insured.

That data is being submitted to
NCUA, however, it is submitted to a

database that is maintained by the
CFPB, and you can actually submit

it through the FFIE C'S website.

The F-F-I-E-C is a Federal Financial
Institutions Examination Council, but

technically the data is being submitted to
the regulator, so it's being, for credit

union, it's being submitted to the NCA.

The CFPB takes the data and provides
it to each of the federal regulators.

So once each of the federal
regulator gets it and it's been

reported, what do they do with it?

So NCOA has it.

You said the CFPB has it.

I think they share it with a couple
other agencies like HUD and DOJ.

Could you explain now that that
is in the domain of these federal

agencies, what happens with it?

Sure.

Well, This credit union data includes
all the data that is submitted.

Some of that data has
some identifiers in it.

So, that is non public data to protect
the privacy of the individuals whose

transactions are being reported, but will
get the data and the agency uses it and

developing its fair lending program and
it's different ways that we'll look at

the data to look to For compliance for the
industry as a whole, but also then to look

for specific credit unions to see if there
are some sort of outliers in the data

that raise a question, not necessarily
a red flag, but just a question, because

sometimes outlier type data is there's a
perfectly reasonable explanation for it.

It's not a violation, but sometimes it
can become a red flag that there might be

some issue with the quality of the data.

Now, the data is is available to
the public, although the data points

that have identifier information
in them are not available to

the public for privacy purposes.

I said, so I think they call that
personally identifiable information that

stripped out in the public versions.

Correct.

Right.

And in addition to the individual
regulators, getting the data for

their regulated institutions,
other agencies will get it.

HUD gets the data to use for its programs.

CFPB can look at it for national trends
and actually CFPB every year will

release the results of its analysis.

Of all the data and compare
if it's a previous years.

Excellent.

Interesting.

So how would you, if you were running a
credit union or suggesting to a credit

union on how they could use their
home, the data, either as it relates to

their institution and or in comparison
to, you know, for example, that CFPB

report, where they they're showing
the trends that happened last year.

What would you recommend a credit
union do with their own data?

Well, yeah, the data is very useful
for an individual institution.

It can look at it to see how well
it is serving its members and the

community, and it can lead to ways
to improve the fair lending program.

The credit union can compare how it is
performing, you know, with a similarly

sized institutions in its geographic
area, whether they be credit unions

or banks or non depository lenders.

And depending on the, The size of the
mortgage lending operation, it might

even be worthwhile for the credit union
to consider getting software that does

more sophisticated analyses of the data.

There's a number of
different programs out there.

Just for everybody's information, the
uses a program called lending patterns.

It's sold by a company
called compliance tech.

Yeah, I'm not necessarily
recommending that or advocating

for it, but the benefit of using.

That is that it's the same software
that your regulator is using.

So, in theory, you should be getting
the same results when you do any

kind of analysis using that program.

That's good to know.

I think our listeners
will appreciate that.

You pointed that resource out and the
fact that utilizes them would have to

be viewed it in my mind as a positive,
because it's almost a running head.

Start.

And again, that's that's not an
endorsement either, but I think

there's some value to that.

Obviously.

So, Joe, if, um.

We just passed April 15th or April 18th,
which was the IRS tax filing date and

government loves their deadlines so that
people put their information in on time.

And if a credit union were to miss
a filing deadline, what happens?

1st, thing is, it should do whatever it
can to get the information filed because

late filing is a violation of Honda, but
also not filing is a violation of Honda.

However, not filing is far more
serious violation than late filing.

So.

The best thing to do is file it.

The N.

C.

U.

A.

will contact those who filed late each
year and recommend that they make efforts

in subsequent years not to do that.

Generally speaking, the N.

C.

U.

A.

will wait for several violations
before taking any action.

But the bottom line is.

Even if you're late, file the data.

Got it.

And as you mentioned, NCUA can't
assess civil money penalties.

They use that very carefully
before they consider that, whether

you have to be a multiple time
late person or late credit union.

It's not, it's civil money penalties.

It's not something NCUA throws around
willy nilly, but it is there to ensure

bad actors do comply with the law.

So, we've mentioned some resources.

Are there any other resources that you,
you want to highlight or any that you

would like to re, highlight here as we
get closer to the end of our show today?

Sure.

Well, the 1st thing is, I direct
everybody to the regulatory alerts.

I hope everybody gets those sent to
them as they're issued, but every

year, the issues to regulatory alerts
on near the beginning of the year.

I believe.

This year they went out
the first week of February.

One, uh, reminds credit unions
who are subject to HMDA to

report the previous year's data.

So this year's would have
talked about 2021's data.

And the other provides the
standards and the requirements for

collecting and reporting 2022 data.

So they kind of get both ends of the
spectrum with those regulatory alerts.

So they, they provide.

More detailed information that I've
discussed, and they also have links

to some of the important references,
which I'm going to talk about now.

I did mention the F.

F.

I.

E.

C.

S.

website.

That's F.

F.

Well, excuse me.

W.

W.

W.

dot.

It has a number of hum to references,
and it actually has a breakdown by year.

If there's any issues with previous
years, probably the most important

resource on that website is what's
called the getting it right guide.

Some people refer to it by its acronym,
which is GERG, which I think is kind

of a awkward word, but the getting
it right guide really is almost 1

stop shopping because it goes over
pretty much every detail and how you

can imagine it has charts on who is
required to comply what date is being

collected what date is subject to the.

Partial exemptions we discussed
doesn't have to be submitted.

It really does have a lot of.

Of individual resources within
it, and then finally, the consumer

financial protection bureaus website,
which is consumer finance dot Gov.

If you can find the compliance
resources there, there is 1 for hum.

And it also has a lot
of different resources.

Very good, Joe.

So before we wrap up here, are there any
sanitized examples of situations that

you recall from your time in charge of
this program where you saw that a credit

union failed to do what it needed to
do and how that might have impacted the

credit union relative to their examination
and or, you know, the, the steps that

that credit union had to take to get
back within the confines of the law.

Anything jump into your head.

Well, a couple of things.

There often are times where the data
in the, the LAR is not accurate.

So, what gets submitted to
the website is not accurate.

There actually are standards established
by NCUA so that there's a threshold.

A few minor errors, pretty
much nothing happens.

We just requested that the credit unions
may fix, fix the errors internally.

But if the errors exceed a certain
threshold, the NCUA will require the

credit union to not only correct the
errors, but to resubmit the data.

It's not an area where civil money
penalties are contemplated as long

as the credit union does comply with
the requirement to resubmit the data.

On occasion, there are instances
where the data indicates a lack of

compliance with some fair lending
laws that can be the basis for the N.

C.

U.

A.

putting a credit union on the list for a
fair lending exam, or if it's discovered

during a fair lending exam, it can
require credit union changes, policies and

procedures so that it is complying with.

The equal credit opportunity act
or some other fair lending law.

And in those scenarios, the credit
union could receive a document

resolution or an examiner finding
requiring action on their part.

That would be in discussions with
the people who are the fair lending

examiners that you used to supervise.

Do I have that right?

Yeah, that's correct.

The Fair Lending Program uses the same
type of standards and the same type of

tools that are used for the exams by the
regional offices, the standard exams.

Got it.

Very good.

So, Joe, any final thoughts on this
topic before we wrap up for the day?

I just think it's important for credit
unions to understand, though, that even

though complying with HMDA can be a
chore, that there is a valid reason for

collecting the HMDA data, and that is
to try and ensure that mortgage credit

is offered and extended to everybody
based on mortgage related criteria.

Yeah, to prevent discrimination
to help prevent redlining.

So, you know, if you approach complying
with Honda from that angle, I think

you can see why it has to be done.

It's a benefit for the members and it's
a benefit to the economy as a whole.

Sure, Joe, that's a, that's
a great place to wrap.

I want to, Joe, I want to thank you for
your time today and to the audience.

I want to thank you for
your time and for listening.

Hopefully we'll see you next time.

And until next time, this is
Mark Treichel with Flying Colors.

Thank you for joining us on this
episode of with Flying Colors.

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