FHFA pushes for increased data collection

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Two recent announcements from the Federal Housing Finance Agency (FHFA) will prompt the mortgage services industry to increase its collection and maintenance of consumer demographics and language data.

On May 3, 2022, the FHFA announced that Fannie Mae and Freddie Mac (the GSEs) will require lenders submitting loans to the GSEs to use the Supplemental Consumer Information Form (SCIF) as part of the application process. The SCIF collects information about the borrower’s language preference (if the borrower agrees to provide it), as well as any homebuying training or housing advice the borrower has received. The intended result is that lenders better understand the borrower’s needs during the home buying process. The GSEs will further require lenders to report all data collected from SCIF to the entity purchasing the loan. Lenders are required to adopt the new amendments for all loans with an application date on or after March 1, 2023. FHFA Acting Director Sandra L. Thompson said, “These steps will contribute to a fair housing finance system that welcomes all qualified borrowers.” The CFPB welcomed the announcement and advised that collecting a candidate’s language preference would not violate the Equal Credit Opportunity Act (ECOA) or its implementing regulations. CFPB Director Rohit Chopra said, “CFPB looks forward to seeing progress in broader language access to better serve all borrowers.

With similar goals in mind, GSE later announced the August 10, 2022 that they will require managers to obtain and maintain fair loan data on future loans (if obtained during the origination process). This data must be kept in a searchable format and transferred with the service throughout the term of the loan. Fair loan data to keep includes race, ethnicity, age, gender, and preferred language of borrowers. Repairers are encouraged to implement these policy changes immediately, but no later than March 1, 2023. Individual GSE announcements can be found at Fannie Mae Announcement SVC-2022-06 and Freddie Mac Newsletter 2022-17.

Thompson advised “[t]he need to collect and maintain quality fair lending data is a lesson learned from the foreclosure crisis and the response to COVID-19” and “[h]Having a fair journey between loan data and service will help service agents do the important work of providing assistance to borrowers in need, helping to promote a sustainable and equitable housing finance system. .

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Currently, service agents do not normally maintain loan-level data regarding borrower protected characteristics under the ECOA and often do not maintain consistent information on language preferences. While this data limitation creates challenges for servicers looking to self-audit for fair service risk, this lack of data also poses major hurdles for regulators looking to identify mismatches based on protected features. The GSE announcements will fundamentally change this dynamic. Of course, it will take a long time for the industry to accumulate a critical mass of loans managed with actionable data. Nonetheless, since this data will increase fair service risk for managers, stakeholders should begin to prepare by (1) reviewing their fair service policies, particularly those related to loan modifications; (2) rethink procedures related to borrowers with limited English proficiency; and (3) think about how they can use the increased access to data to their advantage.

© 2022 Bradley Arant Boult Cummings LLPNational Law Review, Volume XII, Number 228