Alert October 15, 2013

CFPB, In Coordination with the Massachusetts Division of Banks, Announces Enforcement Action for HMDA Reporting Violations

In coordination with the Massachusetts Division of Banks, the CFPB announced that it entered a consent order against a nonbank and a national bank for violations of the Home Mortgage Disclosure Act finding that the entities compliance systems were inadequate and that they had severely compromised mortgage lending data. HMDA and its implementing regulation, Regulation C, requires mortgage lenders that meet certain threshold conditions to collect, report to Federal regulators, and disclose to the public certain data (e.g., loan amount, loan purpose) about applications for, and originations and purchases of, home purchase loans, home improvement loans, and refinancings for each calendar year. The consent decree comes after a CFPB investigation found significant data errors in the 21,015 mortgage loan applications the nonbank reported for 2011 and noted that both it and the Massachusetts Division of Banks found that the nonbank’s error rates exceeded applicable resubmission thresholds. The CFPB exam also found significant errors in the 5,785 mortgage loan applications the national bank reported for 2011. The consent orders call for civil money penalties against both entities and compliance monitoring. In particular, both entities are required to correct and resubmit their 2011 HMDA data and develop and implement an effective HMDA compliance management system to prevent future violations. This is the first such enforcement action for violations of HMDA by the CFPB.

In conjunction with the enforcement actions, the CFPB also issued a guidance bulletin “putting [mortgage lenders] on notice” about the importance of submitting correct mortgage loan information under HMDA. The bulletin provides guidance on effective structuring of HMDA compliance management systems, announces the CFPB’s HMDA Resubmission Schedule and Guidelines, which applies to the CFPB’s HMDA data integrity reviews beginning on or after January 18, 2014, and discusses factors that the CFPB may consider in deciding whether or not to pursue a public HMDA enforcement action (e.g., 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).