CFPB Enforcement Action Highlights Consequences of HMDA Errors

On June 18, 2024, the Consumer Financial Protection Bureau (CFPB) filed a stipulated final judgment against Freedom Mortgage Corporation (Freedom) for alleged violations of the Home Mortgage Disclosure Act (HMDA), Regulation C, and the Consumer Financial Protection Act. Financial institutions, including credit unions, are required to comply with HMDA and Regulation C if they meet certain asset and activity thresholds. For a discussion of this year’s thresholds and requirements, check out this previous Compliance Blog post.

Freedom is a non-bank mortgage originator and servicer that, in 2020, was the third largest mortgage lender in the United States by origination volume. This judgment follows the October 10, 2023 filing of a lawsuit by the CFPB and a previous enforcement 2019 enforcement action.

Alleged Conduct

The lawsuit alleges the following conduct:

  • Widespread and significant errors in 2020 HMDA data, such as:
    • Classifying loan application as approved but not accepted, when they were actually withdrawn;
    • Errors regarding subordinate liens and purchased loans;
    • Reporting loans that did not qualify for reporting; and
    • Inaccurate calculations for rate spreads and inaccurate data on lender credits.
  • Resubmission of 2020 data resulted in changes to “20% of all covered loans” and “over 174,000 data entries.”
  • Systemic compliance management systems failures, such as:
    • Data entry policies and procedures that were inconsistent and/or incomplete;
    • Failure to update internal systems;
    • Issues with data mapping; and
  • Violating a 2019 consent order requiring Freedom to follow the requirements of HMDA and Regulation C.

Ordered Relief

Under the Consent Order, Freedom is required to do the following:

  • Not violate HMDA or Regulation C;
  • Properly collect and record required HMDA data;
  • Develop and implement policies and procedures to prevent and detect errors in Freedom’s HMDA data;
  • Develop and implement initial and annual training for Freedom’s employees;
  • Establish a HMDA compliance subcommittee to be maintained for at least 5 years;
  • Retain a third-party independent auditor to monitor Freedom’s HMDA data;
  • Conduct quarterly HMDA transaction testing for at least 5 years;
  • Evaluate and correct HMDA data for calendar years 2021, 2022, and 2023;
  • Establish a compliance plan; and
  • Pay a civil money penalty of $3,950,000.

Credit unions that provide mortgage loans may want to further review the Complaint and Judgment, as it discusses the violations and requirements more in depth. This action serves as a reminder of the steep penalties that can result from HMDA violations, especially when an institution is a “repeat offender.” For information on filing your HMDA data, credit unions should take a look at the HMDA Getting it Right Guide. The guide includes in-depth explanations on filing requirements, a small entity compliance guide, data collection instructions, and step by step charts.

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