Say a loan officer at your bank enters a home mortgage loan into your system. The address gets geocoded, but somewhere a mistake is made and that address ends up being assigned to the wrong census tract.
No big deal, right?
Not so fast. That one small error can set off two very different chains of events.
On the Home Mortgage Disclosure Act (HMDA) side, your system is designed to catch most of these errors during your next Loan Application Register (LAR) submission. The loan fails an “edit” check while submitting, and now you have to scramble to correct the issue and resubmit before your deadline.
That’s bad enough, but on the Community Reinvestment Act (CRA) side, that wrong address sits in your system quietly until it’s time for your exam. There are no alerts or error messages. You think everything is going swell.
Then an examiner pulls your assessment area map and asks why there’s a loan out in the middle of nowhere. Oops. Now you have to go back, dig up the correct address, update your records, and ask the examiner to take another look. Awkward.
Same address. Same mistake. And two completely different outcomes.
For banks that are subject to the CRA and HMDA, a lot of the data you have to track overlaps between regulations (especially your bank’s home mortgage loan data).
And when data overlaps, making a simple mistake can increase your bank’s regulatory risk. Since the same home mortgage loan is reported in your LAR and during your next CRA exam, that means a simple address mistake can cause trouble on two fronts.
So why is it important to geocode addresses correctly? How does the same incorrect address affect both your HMDA LAR and your CRA exam? And what can you do to avoid it?
Why it’s important to geocode addresses correctly
Geocoding is the process of turning a physical address into geographic identifiers (such as a census tract, county, or latitude and longitude) so the location can be mapped and analyzed. Banks rely on geocoding tools to place loans, services, and investments into the right census tracts for CRA, HMDA, and fair lending purposes.
You can learn more about geocoding in this article, so we won’t go into detail here. Just know that geocoding itself doesn’t change based on which regulation you’re reporting for. The same address gets assigned to the same census tract whether it’s headed for your LAR or your CRA exam.
What does change is what happens next. Your HMDA and CRA programs each have their own systems, review processes, and ways of catching (or missing) mistakes.
How an incorrect address affects your HMDA LAR
Every record in your Loan Application Register must go through a series of “edit” checks before your data is accepted. And a geocoding error is exactly the kind of thing those checks are built to catch.
If a loan's address doesn't match its assigned census tract, the system should flag it right away. So no sitting around hoping it’s geocoded correctly when you submit your LAR. Knowing that something's wrong well before your March 1st deadline gives your team time to fix it before the deadline actually hits.
If you do get an error, it’s time to track down the correct address, fix the record, and run the check again.
If an error does slip through and you submit your LAR, it’s not the end of the world. Regulators usually just require you to correct and resubmit your data. This might mean combing back through a year's worth of records to make sure nothing else got missed, which isn’t exactly something you can do in five minutes.
Why this matters
Did you know that anyone with an internet connection can access your HMDA data?
Community groups, researchers, and journalists can pull your LAR and analyze your bank’s home mortgage patterns. If your LAR has geocoding errors that place loans in the wrong census tracts, you might have some explaining to do. Journalists who think your bank isn’t lending to LMI communities can make your bank look pretty bad.
The upside is that those “edit” checks are doing you a favor. The sooner you catch a mistake, the less time it has to cause problems somewhere else—including, as it turns out, your CRA exam.
How an incorrect address affects your CRA exam
Unlike HMDA, CRA doesn’t have an “edit” check waiting to catch bad addresses. You could have an incorrect address sitting in your system for months or years before realizing it.
Because mistakes can sail right through your CRA system, it’s easy to think your bank is in a great spot, lending-wise. And maybe you are…but maybe you aren’t. You’ll never know until someone catches the mistake.
And that “someone” is often an examiner.
During your Lending Test, examiners review exactly the kind of data a bad address can distort: geographic distribution of loans, lending in low- and moderate-income census tracts, and whether your activity actually falls inside your assessment area. If a loan gets geocoded into the wrong tract, it can look like it belongs outside your assessment area when it doesn't, or misrepresent how much lending you're actually doing in an LMI neighborhood.
You'll still get the chance to correct the record and explain what happened. But an on-the-spot correction is a lot more stressful than a routine internal fix. Especially if you have to dig through years of data to find one innocent little address.
Why this matters
The responsibility for catching these address errors falls entirely on your internal review process. There's no automated safety net here, so if you're not checking your own data, then chances are nobody finds it until the exam.
This means your bank needs a solid geocoding tool and internal review process. Without taking the proper steps now, your next CRA exam might be a lot more awkward than you bargained for.
How to catch errors before they cause problems
Luckily, most geocoding errors are preventable.
Here are a few practices to keep in mind:
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Validate addresses at the point of entry. The earlier you catch a geocoding mistake, the cheaper and easier it is to fix. Waiting until submission or exam season just raises the stakes.
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Cross-check your CRA assessment area maps against your HMDA data. Since both pull from the same underlying loan information, a mismatch between the two is often a sign that something was geocoded incorrectly somewhere along the way.
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Keep your FFIEC and census data current. Boundaries change. If your geocoding tool is working off outdated reference data, you can end up with errors that have nothing to do with the address itself.
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Don't treat geocoding as a "set it and forget it" task. Build in periodic reviews, especially after any change to your assessment area or a batch of new loan data.
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Remember that HMDA passing doesn't mean CRA is clean. Just because a loan cleared your “edit” checks doesn't mean its geocoding is CRA-exam-ready. The two processes check for different things.
None of this requires overhauling your whole system. Just treat geocoding as an ongoing habit instead of a once-a-year scramble, and chances are you’ll be just fine.
How Kadince can help
Manually double-checking every address against two different regulatory processes is exactly the kind of task that eats up hours you don't have, especially if you wear multiple hats at your bank. Kadince's Geocoding & Mapping tools assign accurate census tract data once, and that same verified data flows into both your HMDA Management and CRA Management products. No more geocoding twice or hoping your two systems happen to agree.
That means fewer surprises during HMDA submissions and CRA exams. Your HMDA data stays clean going into submission, and your CRA assessment area maps reflect the loans you’ve actually made (long before examiners notice a mistake).
If you're ready to stop double-checking addresses by hand or relying on outdated systems, schedule a demo to see how Kadince helps properly geocode loan addresses and reduce compliance risk the first time around.
None of Kadince, Inc., its affiliates, or its respective employees, directors, officers, and agents (collectively, “Kadince”) are responsible or liable for any content or information incorporated herein. Read full disclosure.
