Two recent announcements by the Federal Housing Finance Agency (FHFA) will push the mortgage servicing industry to increase its collection and maintenance of consumer demographic and language preference 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 homebuyer education or housing counseling the borrower has received. The intended result is for lenders to better understand the borrower’s needs during the home buying process. The GSEs will further require lenders to report all data collected from the SCIF to the entity purchasing the loan. Lenders are required to adopt the new changes for all loans with application dates on or after March 1, 2023. FHFA Acting Director Sandra L. Thompson advised that, “These steps will contribute to an equitable housing finance system that welcomes all qualified borrowers.” The CFPB welcomed the announcement and advised that collecting an applicant’s language preference will not violate the Equal Credit Opportunity Act (ECOA) or its implementing regulations. CFPB Director Rohit Chopra noted, “The CFPB is eager to see advances in broader language access to better serve all borrowers.”

With similar goals in mind, the GSEs later announced on August 10, 2022 that they will require servicers to obtain and maintain fair lending data on future loans (if it was obtained during the origination process). Such data must be maintained in a queryable format and transfer with the servicing throughout the life of the loan. The fair lending data to be maintained includes borrowers’ race, ethnicity, age, gender, and preferred language. Servicers are encouraged to implement these policy changes immediately but no later than March 1, 2023. The GSEs’ individual announcements are found at Fannie Mae Announcement SVC-2022-06 and Freddie Mac Bulletin 2022-17.

Thompson advised “[t]he need for collection and maintenance of quality fair lending data is a lesson learned from the foreclosure crisis and COVID-19 response” and “[h]aving fair lending data travel with servicing will help servicers do the important work of providing assistance to borrowers in need, helping to further a sustainable and equitable housing finance system.”​

Takeaways

Servicers currently do not normally maintain loan-level data concerning borrowers’ protected characteristics under ECOA and often do not maintain consistent language preference information. While this limitation on data creates challenges for servicers who seek to self-audit for fair servicing risk, that lack of data also poses key hurdles for regulators seeking to identify disparities based on protected characteristics. The GSEs’ announcements will fundamentally change this dynamic. Of course, it will take a long while for the industry to accumulate a critical mass of serviced loans with actionable data. Nevertheless, because this data will operate to increase fair servicing risk for servicers, stakeholders should begin preparing by (1) revisiting their fair servicing policies, especially those related to loan modifications; (2) rethinking procedures related to borrowers with limited English proficiency; and (3) considering how they can use increased access to data to their advantage.

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Photo of Christy W. Hancock Christy W. Hancock

Christy Hancock’s practice is dedicated to financial services regulatory compliance and litigation. Her work with mortgage servicing and financial institution clients has given her a broad base of knowledge regarding laws affecting the mortgage servicing business, including bankruptcy and foreclosure best practices, payment…

Christy Hancock’s practice is dedicated to financial services regulatory compliance and litigation. Her work with mortgage servicing and financial institution clients has given her a broad base of knowledge regarding laws affecting the mortgage servicing business, including bankruptcy and foreclosure best practices, payment application, correspondence requirements, allowable fees, loan modifications, escrow requirements, and property preservation. In recent years, the majority of her practice has focused on advising large financial institutions on bankruptcy-related regulatory matters and large-scale remediation projects.

Photo of Jonathan R. Kolodziej Jonathan R. Kolodziej

Jonathan Kolodziej represents all types of consumer financial service providers in regulatory compliance, examination and enforcement matters. Through this work, he has assisted bank and non-bank mortgage servicers, mortgage originators, debt collectors, depository institutions, credit card issuers, small dollar lenders, reverse mortgage companies…

Jonathan Kolodziej represents all types of consumer financial service providers in regulatory compliance, examination and enforcement matters. Through this work, he has assisted bank and non-bank mortgage servicers, mortgage originators, debt collectors, depository institutions, credit card issuers, small dollar lenders, reverse mortgage companies, investment firms, and various industry trade associations.

Photo of Christopher K. Friedman Christopher K. Friedman

Chris Friedman is a regulatory compliance attorney and litigator who focuses on helping consumer finance companies and small business lenders, as well as banks, fintech companies, and other participants in the financial services industry, address the challenges of operating in a highly regulated…

Chris Friedman is a regulatory compliance attorney and litigator who focuses on helping consumer finance companies and small business lenders, as well as banks, fintech companies, and other participants in the financial services industry, address the challenges of operating in a highly regulated sector. Chris focuses on both small business lenders and alternative business finance products and has helped non-bank small business lenders, banks who make small business loans, commercial credit counselors, lead generators, and others in the industry. He helps clients launch new products, conduct due diligence, engage in compliance reviews, evaluate litigation risk, and solve some of the unique legal problems faced by companies who work with small businesses. In that vein, Chris has written extensively about the upcoming rulemaking related to Dodd-Frank 1071, which will require data collection and reporting by companies making loans to certain small businesses.