The Consumer Financial Protection Bureau, OCC, and FDIC recently released statements promising leniency with regard to resubmission of 2018 HMDA data. The Agencies' statements recognize the additional complexity in data collection and reporting caused by new data requirements and mandatory reporting of home equity and commercial business channels. Unfortunately, the statements may be rhetorical unless the Bureau’s new HMDA submission portal's (the "HMDA Portal") software is revised to relax presubmission validation rules and attestations. To achieve the stated leniency objectives, the Bureau should consider the following steps: 1) Relax the HMDA Portal's workflow, and 2) Provide data correction guidance under the safe harbor at § 1003.6(b).

As presently designed, the HMDA Portal requires creditors to perfect their data and attest to its accuracy prior to submission. The HMDA Portal will be used for the first time in 2018 with the submission of the 2017 HMDA reports. Although time is short, the implementation of these steps would be welcome for 2017 data. With the added complexity of 2018 data fields, creditors will face even greater risk of being forced to attest to the quality of data they may know has problems.

Relax the HMDA portal's workflow

The new HMDA portal submission workflow is as follows:

1. Creditors upload full HMDA data set (all channels);
2. HMDA Portal performs validation;

• Syntactical edits -- validate the correct data format and proper year of filing - data must pass to proceed;

• Validity edits -- validate the values in each data field, including existence of data in required fields, permissible values in each field, and cross-field data dependencies - data must pass to proceed;

• Quality macro edits -- validate the register as a whole, including ratios of types of entries - to proceed, the authorized submitter for the creditor must not only certify to the general accuracy of the data but that s/he has verified the accuracy of all data fields referenced by the macro edits;
  Assuming Syntactical and Validity edits are passed and Quality edits are certified: 3-valid. Bureau’s workflow reveals submit button and creditor files report;

Alternatively, if data fails Syntactical or Validity edits in step 2) or creditor cannot certify quality edits the path continues with: 3-invalid. HMDA report cannot be submitted (button to submit remains inactive); 4-invalid. Creditor must make sufficient corrections to pass syntactical and validity edits and to certify quality edits and resubmit at step 1).

HMDA Portal workflow changes necessary for promise of leniency to be meaningful

Unless the Bureau alters its workflow to allow data submission without meeting all data validation testing, the promise of 2018 HMDA submission leniency is greatly diminished. If creditors cannot work out their data integrity problems in advance of the filing deadline they will be forced to file late. Arguably, a creditor that cannot fix its validation issues should have no submission at all, because the only alternative is to certify questionable data.

Absent amendment, the certification itself leaves little room for leniency. The certification required under the portal has changed. Filers of paper certification used in prior years attested as follows: "I certify to the accuracy of the data contained in this register." When known errors existed, the creditor always had the option to scroll a note on the form warning of potential concerns. The portal requires the following: "All data are accurate, no corrections required. I have verified the accuracy of all data fields referenced by the macro edits." The new certification is made online and there is no field for comments.

The addition of the personal verification of data fields related to macro edits is significant because those items affect the filing as a whole. One example is Q636 "No more than 30% of the loans in the file should report Action Taken equals 4. Your data indicates a percentage outside of this range." 2018 HMDA FIG p. 147. Individual verification of "the accuracy of all data fields referenced" in 30% of the loans would be impracticable. It is common practice for the data to be systematically reviewed at a macro level when such items are identified.

For effective leniency, the HMDA Portal needs the following changes:

Relax validity edits requirement - permit submission of the report even if all the new 2018 data fields are not valid.
Soften absolute nature of certification - make the quality edits certification less absolute or provide an alternative to acknowledge deficiency and provide a remediation plan. Unless the Bureau amends the HMDA Portal workflow it may not know whether data validity problems were the cause of late filings. Amending the workflow to give creditors feedback from validity and quality validation while allowing submission without absolute certification in cases where all tests are not passed would allow the Bureau to identify patterns where creditors struggle with data collection, giving real meaning to the offer of leniency. Presumably, the information available to the Bureau from receiving the imperfect data could provide invaluable feedback for future rulemaking. The risk that the leniency sought may be less than that received should be sufficient to keep creditors motivated to get the data right. Additionally, the inclusion of self-reporting fields should be seen as an invitation to file bad data, but a positive step in self-reporting and as promoting remediation efforts.

Provide data correction guidance under the safe harbor at § 1003.6(b)

Current regulations and guidance focus on how the data must be submitted, with little guidance on what to do when that is not the case. Creditors obviously need to report the data they have accurately, but sometimes the data a creditor has just isn't accurate. When data correction is necessary, creditors need guidance in what assumptions they are permitted to make about absent or incorrect data.

With the inclusion of § 1003.6(b) Congress acknowledged that a creditor's data may not always be perfect. Data correction is not always possible because consumers are notoriously uncooperative post-closing, and may have reported conflicting data. Additionally, software systems that do not reveal inapplicable fields to users may leave those fields blank. In such cases, is a creditor permitted to substitute data for consumer supplied fields or to affirmatively supply "NA" without manually validating blank data fields? Or, will systematic data corrections made to meet validation rules lead to a robo-signing like enforcement actions? In the absence of official guidance on permissible data correction practices, creditors are justifiably concerned as the 2018 data fields enhance the complexity of HMDA reporting.

To correct data prior to submission, creditors will have to either: Find transaction discrepancies and correct them;
Collect new information, which consumers may not be willing to provide;
Make after the fact systematic assumptions related to identified flaws in system design; or
Report fewer than actual transactions if transactions identified by the Bureau with bad data cannot be corrected to pass validation. Clarifying that the above approaches to data correction are permissible would be a significant step toward mitigating the compounded risk of additional HMDA data collection. But as the HMDA Portal workflow now stands, the § 1003.6(b) exception cannot be acknowledged at the time data is submitted and validated. Instead, it must be relied upon as a defense for attesting to data with known conflicts.

Additionally, it is conceivable that a defect in the HMDA Portal software could cause validation failure when creditors' data is accurate. Defects, once identified, can be corrected, but the impact on a creditors filing has not been addressed by the safe harbor. Load testing hadn't been performed on the HMDA Portal as of September 2017, but hopefully it will be capable of handling the filing when it must be submitted. The safe harbor provision should clarify that creditors are not responsible for a late filing in the event the Bureau's software fails.

Conclusion

Ultimately, the new HMDA Portal is a valuable tool for the Bureau and the industry. It is about to be placed in production and both industry and the Bureau need to watch its performance closely. However, the software governing the HMDA Portal's workflow has enhanced HMDA risk by barring initial submission of HMDA reports until after data has been corrected and certified. For the promise of leniency to be effectively carried out the HMDA Portal's submission workflow needs to be relaxed to allow creditors to submit data without making false statements and § 1003.6(b) safe harbor guidance should be enhanced to instruct creditors in what corrective actions are permissible.