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The CFPB announced a settlement today with Freedom Mortgage Corporation in the amount of $1.75 Million dollars for HMDA Violation Reporting Errors, specifically regarding race, ethnicity, and sex.

In the Consent Order, the issue seems to focus on the use of technology solution that did not perform as needed, and as a result, the company developed “workarounds”  that manipulated the real HMDA data.

Specifically, the Consent Order mentions:

  • Respondent’s electronic system-of-record is a proprietary system called “Lakewood.” Loan officers in call centers collect and enter application information from consumers into an overlay to Lakewood also created by
    Respondent, called “Sales Portal.” However, if Lakewood detects that certain application information is missing, it is programmed to initiate a “hard stop” that prevents the file from advancing or being saved in Sales
    Portal. When applicants did not provide the requested race or ethnicity over the phone, the Sales Portal user manual instructed loan officers to enter the information in Sales Portal in a way that would produce a hard stop.
  • To get around this hard stop, certain loan officers were told by managers or other loan officers that, when applicants did not provide their race or ethnicity, they should select non-Hispanic white (regardless of whether that
    was accurate).
  • Audio recordings reviewed by the Bureau of applications taken over the phone from approximately 430 applicants from 2014 through part of 2017, at least 125 applicants did not provide the requested race and/or
    ethnicity, yet Respondent reported these applicants as non-Hispanic white.
  • Audio recordings reviewed by the Bureau show that Respondent misreported data in another way in approximately 300 instances. Specifically, Respondent incorrectly reported applicants as non-Hispanic white even though the applicants provided requested race or ethnicity information other than non-Hispanic white, overstating the number of non-Hispanic white applicants.
  • In addition, in October 2015 Respondent internally identified that, for VA guaranteed loans, if the applicant’s sex was selected as “information not provided,” Sales Portal did not allow the marital status to be saved and would
    remove the co-applicant’s income.
  • Rather than addressing this system issue, for nearly a year—Respondent used the “workaround” of selecting a sex when the applicant did not provide one for telephonic applications.

I suspect that the CFPB is just getting warmed up on HMDA issues, especially now that they have an abundance of data from 2018 to sort through,

and an increasingly sophisticated technology that is utilizing AI to detect lender patterns and practices.

Lessons Learned and What You Can Do to Prevent This in Your Own Company:

  1. Do you understand and have you diagrammed the processes that the consumer, loan originator or other technical personnel go through when utilizing any of your technologies?
  2. Is the staff that works with the technology daily, offered an “open door” to communicate problems to the Executive Team and Compliance Team?
  3. If you do have “workarounds” are they simply processed oriented or do they violate federal regulation?  Those that even hint at violating Federal or State laws should be addressed immediately with your vendor.
  4. Are you watching your “consumer complaints”?  In this case, complaints were received and the practice still continued.  These complaints should have been a “red flag” that there was an issue.
  5. I’m attaching the consent order below.  If you read through it, you will see that policy, procedures, training, and processes were lacking in the opinion of the bureau and are expected to be enhanced.

Fintech solutions are being developed at such a rapid pace right now, especially at the point of sale and process.  Some of these solutions are vetted to a degree and others are not at all.  Few companies want to take the time to dissect what you will be using, especially if it has all of the shiny bells and whistles you are hoping for.  The lesson, in this case, is that this type of vetting, no matter how tedious or boring it seems, needs to be done to avoid issues like this case.  Otherwise, staff will find their own “workarounds” to get the technology to perform the way they need it to and your company will be left with the bill for the violations that occur.

If you need assistance in this area, I’m just an email or phone call away!

Consent Order 


Tammy Butler, Master CMB

Author Tammy Butler, Master CMB

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