Why Haven’t Loan Officers Been Told These Facts?
The CFPB is working to reinforce the foundation of a fair, nondiscriminatory, and competitive mortgage market
Mortgage loan officers fail to report required HMDA data
From the CFPB
HMDA and its implementing regulation, Regulation C, generally require mortgage lenders to collect and report applicants’ demographic information, among other data points. Most applicants provide this data voluntarily. However, if an applicant declines to do so during an in-person application, the regulation requires the lender to attempt to collect this information through visual observation or by looking at the applicant’s surname. For applications not taken in person – such as those made online, by mail, or over the phone – this visual observation requirement doesn’t apply. In these cases, if the applicant doesn’t provide their demographic information, the lender reports that the “information was not provided by applicant in mail, internet, or telephone application.” A lender’s failure to follow these requirements to collect, record and report demographic information constitutes a violation of HMDA and Regulation C.
The CFPB’s analysis of 2018-2022 HMDA data identified thousands of individual loan officers who failed to report required demographic information at egregiously (and implausibly) high rates. In 2022, there were over 7,000 loan officers nationwide that reported that demographic information was “not provided by the applicant” in 95 percent or more of their mortgage applications reported in HMDA. This may represent loan officers who are discouraging applicants from answering demographic questions, or who are intentionally misreporting that applicants decline to answer the questions. It also raises questions about whether the financial institution’s compliance management system is working, if a lender is submitting records with these troubling patterns.
Examples of Recent HMDA Enforcement Actions
Example One
WASHINGTON, D.C. – The Consumer Financial Protection Bureau (CFPB) today ordered Bank of America to pay a $12 million penalty for submitting false mortgage lending information to the federal government under a long-standing federal law. For at least four years, hundreds of Bank of America loan officers failed to ask mortgage applicants certain demographic questions as required under federal law, and then falsely reported that the applicants had chosen not to respond. Under the CFPB’s order, Bank of America must pay $12 million into the CFPB’s victims relief fund.
“Bank of America violated a federal law that thousands of mortgage lenders have routinely followed for decades,” said CFPB Director Rohit Chopra. “It is illegal to report false information to federal regulators, and we will be taking additional steps to ensure that Bank of America stops breaking the law.”
Bank of America (NYSE:BAC) is a global systemically important bank headquartered in Charlotte, North Carolina. As of June 2023, the bank had $2.4 trillion in assets, which makes it the second-largest bank in the United States.
Enacted in 1975, the Home Mortgage Disclosure Act (HMDA) requires mortgage lenders to report information about loan applications and originations to the CFPB and other federal regulators. The data collected under HMDA are the most comprehensive source of publicly available information on the U.S. mortgage market. The public and regulators can use the information to monitor whether financial institutions are serving the housing needs of their communities, and to identify possible discriminatory lending patterns.
The Home Mortgage Disclosure Act requires financial institutions to report demographic data about mortgage applicants. The CFPB’s review of Bank of America’s HMDA data collection practices found that the bank was submitting false data, including falsely reporting that mortgage applicants were declining to answer demographic questions. This conduct violated HMDA and its implementing regulation, Regulation C, as well as the Consumer Financial Protection Act. Specifically, the CFPB found that Bank of America:
- Falsely reported that applicants declined to provide information: Hundreds of Bank of America loan officers reported that 100% of mortgage applicants chose not to provide their demographic data over at least a three month period. In fact, these loan officers were not asking applicants for demographic data, but instead were falsely recording that the applicants chose not to provide the information.
- Failed to adequately oversee accurate data collection: Bank of America did not ensure that its mortgage loan officers accurately collected and reported the demographic data required under HMDA. For example, the bank identified that many loan officers receiving applications by phone were failing to collect the required data as early as 2013, but the bank turned a blind eye for years despite knowledge of the problem.
Enforcement Action
Under the Consumer Financial Protection Act (CFPA), the CFPB has the authority to take action against financial institutions violating consumer financial laws, including HMDA and Regulation C. Today’s order requires Bank of America to take steps to avoid its illegal mortgage data reporting practices and to pay a $12 million penalty to the CFPB’s victims relief fund.
Example Two
WASHINGTON, D.C. – The Consumer Financial Protection Bureau (CFPB) today filed a proposed order that would require Freedom Mortgage Corporation to pay a $3.95 million penalty for submitting error-riddled mortgage loan data to federal regulators. In October 2023, the CFPB sued the nonbank mortgage company for violating both the Home Mortgage Disclosure Act (HMDA) and a 2019 CFPB order. In addition to the civil money penalty, if entered by the court, today’s proposed stipulated judgment and order will require Freedom Mortgage to regularly audit, test, and correct the company’s HMDA data.
“Freedom Mortgage is a repeat offender that has ignored requirements to submit accurate data that help federal regulators maintain a fair home lending market,” said CFPB Director Rohit Chopra. “The CFPB is making sure that Freedom Mortgage pays for their actions as well as institutes guardrails to prevent future violations.”
Freedom Mortgage Corporation is a privately held nonbank mortgage loan originator and servicer headquartered in Boca Raton, Florida. In 2020, Freedom reported HMDA data on over 700,000 mortgage loan applications and originated nearly 400,000 HMDA-reportable loans worth almost $100 billion.
The CFPB is proposing today’s order because Freedom Mortgage has submitted incorrect mortgage data in violation of HMDA, the 2019 order, and the Consumer Financial Protection Act. Freedom Mortgage’s HMDA data submission for 2020 contained widespread errors across numerous data fields because of systemic problems with its compliance management systems. The company’s HMDA violations occurred while Freedom Mortgage was subject to the 2019 law enforcement order.
Enforcement Action
Under the Consumer Financial Protection Act, the CFPB has the authority to take action against nonbank financial institutions, including non-bank mortgage companies, for violating consumer financial protection laws, regulations, and orders, such as the CFPB’s 2019 order. If entered by the court, the CFPB’s proposed stipulated judgment and order will require Freedom Mortgage to:
- Prevent future HMDA violations: The order imposes injunctive relief designed to prevent future violations of the law by requiring Freedom Mortgage to regularly audit, test, and correct the company’s HMDA data.
- Pay a $3.95 million fine: The order requires Freedom Mortgage to pay a $3.95 million penalty to the CFPB’s victims relief fund.
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BEHIND THE SCENES – FTC Safeguards Rule
Cyber Event Notification Requirement In Effect
Congress enacted the Gramm Leach Bliley Act (“GLBA”) in 1999. The GLBA provides a framework for regulating the privacy and data security practices of a broad range of financial institutions. Among other things, the GLBA requires financial institutions to provide customers with information about the institutions’ privacy practices and about their opt-out rights, and to implement security safeguards for customer information.
Subtitle A of Title V of the GLBA required the Commission and other Federal agencies to establish standards for financial institutions relating to administrative, technical, and physical safeguards for certain information. Pursuant to the GLBA’s directive, the FTC promulgated the Safeguards Rule in 2002.
In October 2023, the FTC announced revised provisions related to reporting data breaches and security incidents. However, businesses were given six months to prepare for the changes that took effect on Monday, May 13, 2024.
The amendment requires financial institutions to notify the FTC as soon as possible – and no later than 30 days after discovery – of a security breach involving the information of at least 500 consumers.
The amended Rule requires financial institutions to report notification events, defined as the unauthorized acquisition of unencrypted customer information, involving at least 500 customers to the Commission. The notice to the Commission must include:
(1) The name and contact information of the reporting financial institution.
(2) A description of the types of information that were involved in the notification event.
(3) If the information is possible to determine, the date or date range of the notification event.
(4) The number of consumers affected.
(5) A general description of the notification event.
(6) If applicable, whether any law enforcement official has provided the financial institution with a written determination that notifying the public of the breach would impede a criminal investigation or cause damage to national security, and a means for the Federal Trade Commission to contact the law enforcement official.
Financial institutions must electronically notify the FTC of a covered event through a form located on the FTC’s website.
Covered persons must use a new online form that explains in plain language the specific information to provide.
Tip of the Week – Join The Loan Officer School for 2024 CE
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