Oct 10 - The Consumer Financial Protection Bureau ordered Mortgage Master Inc. and Washington Federal to pay civil penalties for violating the Home Mortgage Disclosure Act, which requires certain mortgage lenders to accurately collect and report data about home mortgage loans. Mortgage Master will pay $425,000 and Washington Federal will pay $34,000 in civil penalties. The CFPB is also releasing a bulletin today that puts mortgage lenders on notice about the importance of submitting correct mortgage loan information under HMDA.
“When financial institutions report inaccurate information, it obstructs the purpose of the Home Mortgage Disclosure Act and makes it more difficult for the CFPB to discover and stop discriminatory lending,” said CFPB Director Richard Cordray. “Today we are sending a strong signal that no mortgage lending institution – whether bank or nonbank – should be able to mislead the public with erroneous data.”
In 1975, Congress passed the Home Mortgage Disclosure Act requiring certain mortgage lenders to make loan information available to the public. Banks, savings associations, credit unions and mortgage companies must disclose information about home mortgage loan applications, including information about the applications they reject. The Dodd-Frank Wall Street Reform and Consumer Protection Act transferred HMDA rulemaking authority to the CFPB and made the CFPB a HMDA enforcement agency.
Inaccurate HMDA data impedes the bureau’s efforts to detect violations of the Equal Credit Opportunity Act and to stop discrimination in home mortgage lending. Federal prudential regulators, enforcement agencies, community organizations, and state and local agencies also rely on accurate HMDA data to evaluate a financial institution’s compliance with ECOA and other laws, such as the Fair Housing Act and the Community Reinvestment Act. Enforcing HMDA ensures that lenders that engage in discriminatory lending or that fail to meet the credit needs of the entire community, including low- and moderate-income neighborhoods, cannot hinder regulatory efforts by collecting and submitting erroneous data.
The bureau reviews the accuracy of HMDA data and assesses compliance programs as part of its supervision of both banks and nonbanks. To date, the bureau has conducted HMDA reviews at dozens of mortgage lenders, both bank and nonbank, and has found that many lenders have adequate HMDA compliance systems, resulting in HMDA data with no errors or very few errors. In its HMDA reviews conducted at Mortgage Master and Washington Federal, however, the CFPB found that their compliance systems were inadequate and that they had severely compromised mortgage lending data.
Mortgage Master: According to the CFPB’s Consent Order, a CFPB exam found that Mortgage Master, a nonbank headquartered in Walpole, Mass., had significant data errors in the 21,015 mortgage loan applications it reported for 2011. The Bureau collaborated closely in its subsequent investigation with the Commonwealth of Massachusetts Division of Banks, which had also identified significant error rates in Mortgage Master’s HMDA filings. The CFPB’s Consent Order is concurrent with a Consent Order from the Commonwealth of Massachusetts Division of Banks. The CFPB is requiring Mortgage Master to:
Washington Federal: According to the CFPB’s Consent Order, a CFPB exam found that Washington Federal, a bank headquartered in Seattle, had significant errors in the 5,785 mortgage loan applications it reported for 2011. The CFPB is requiring Washington Federal to:
Since the CFPB’s discovery of the inaccuracies, both entities have been taking steps to improve their HMDA compliance management systems and the accuracy of their HMDA mortgage loan information.
Putting Lenders on Notice about the Integrity of Mortgage Information
The CFPB is also issuing a bulletin that puts the industry on notice about the importance of accurate HMDA data and effective HMDA compliance management systems. The bulletin provides transparency into how the CFPB enforces HMDA. Specifically, the bulletin:
— Discusses components of an effective HMDA compliance management system. The bulletin suggests common elements of an effective compliance system, which include employee training, internal audits to test and evaluate information accuracy, and assigning responsibility for timely and accurate reporting of the data.
— Details factors the CFPB may consider when evaluating whether to pursue a public enforcement action for HMDA violations. The CFPB may consider various factors when determining whether to pursue a public enforcement action, including: the size of the bank or nonbank’s mortgage lending activity; the error rate; the history of previous HMDA supervisory activity, including the history of any violations; and whether the institution self-identified or self-corrected any errors. These factors, along with those listed in the Dodd-Frank Act, will be considered when determining the appropriate size of any civil penalty that the bureau seeks.
In assessing the different civil money penalties against Mortgage Master and Washington Federal, the bureau considered the factors set forth in this bulletin, including, in particular, the size of each institution’s mortgage lending, their respective error rates, and each institution’s specific history of prior violations.
The bulletin also announces the release of the CFPB’s HMDA Resubmission Schedule and Guidelines, which lists the error thresholds that CFPB examination teams will use to determine when institutions should correct and resubmit their HMDA data. CFPB examination teams will use different guidelines when they conduct HMDA reviews at banks and nonbanks that have 100,000 or more mortgage loans to report. This is because a low error rate at a large institution can reflect a larger number of HMDA data errors than a comparable error at a smaller institution. The CFPB’s new HMDA Resubmission Schedule and Guidelines apply to HMDA reviews that begin on or after Jan. 18, 2014.
The Mortgage Master Consent Order can be found at: http://files.consumerfinance.gov/f/201310_cfpb_consent-order_mortgage-master.pdf
The Washington Federal Consent Order can be found at: http://files.consumerfinance.gov/f/201310_cfpb_consent-order_washington-federal.pdf
The CFPB’s HMDA Bulletin can be found at: http://files.consumerfinance.gov/f/201310_cfpb_hmda_compliance-bulletin_fair-lending.pdf
The CFPB’s HMDA Resubmission Schedule and Guidelines can be found at: http://files.consumerfinance.gov/f/201310_cfpb_hmda_resubmission-guidelines_fair-lending.pdf