The expansion of fair lending-related data collection and retention requirements continues. On the heels of the large expansion of HMDA data responsibilities back in 2018, and commercial lenders busily preparing to collect and retain data for Dodd-Frank Act 1071 purposes, now the Federal Housing Finance Agency (or FHFA, the regulator of Fannie Mae and Freddie Mac) has joined the party.
On August 10, 2022, the FHFA issued a press release announcing that starting March 1, 2023, “Fannie Mae and Freddie Mac (the Enterprises) will require servicers to obtain and maintain fair lending data on their loans, and for this data to transfer with servicing throughout the mortgage term.” This data will include borrowers’ age, race, ethnicity, gender, and preferred language. In addition, this data must be retained in a queryable format, meaning it must be able to be searched, queried, and transferred.
There are two distinct issues at play here:
- Maintaining age, race, ethnicity, and genderOn its face, this sounds very much like the demographic information collection requirements under the Home Mortgage Disclosure Act (HMDA) and Regulation B (which implements the Equal Credit Opportunity Act, or ECOA). HMDA requires covered lenders to collect ethnicity, race, sex, and age for certain dwelling-secured applications for closed- or open-end credit, while Regulation B requires lenders to collect ethnicity and race, sex, marital status, and age for applications where the purpose of the credit is primarily “for the purchase or refinancing of a dwelling occupied or to be occupied by the applicant as a principal residence, where the extension of credit will be secured by the dwelling.” These rules require the information be requested and collected at the time of application.The principal difference in the FHFA’s requirement is that it applies to servicers, not originators. Age, race, ethnicity, and gender data must be maintained by servicers only if they were “obtained during the origination process.” The FHFA does not require the originator to collect the data at application or origination (as HMDA and Regulation B do), even if it plans to sell or transfer servicing later. Rather, the requirement is that servicers “obtain and maintain fair lending data on their loans, and for this data to transfer with servicing throughout the mortgage term.” From whom will servicers obtain this information? It will come from the originating lender.
The Fannie Mae Servicing Guide Announcement, issued the same day of the FHFA’s press release, stated that “the transferor servicer must deliver to the transferee servicer the fair lending data elements…if obtained during the origination process.” Freddie Mac’s Servicing Updates contains similar language: “Servicers must maintain the following fair lending data elements provided they were obtained during the origination process.”
“If” and “provided” are the operative words here. Originating lenders who are HMDA reporters already collect the four data elements required by the FHFA, as do mortgage lenders covered by Regulation B (which is essentially all of them), although the data will differ and be collected for different loan types, since HMDA and Regulation B do not mandate the same requirements. The only procedural change for originators is to ensure that any subsequent sale or transfer of servicing of a Fannie or Freddie loan includes the four data points (in a queryable format), but only if it was collected at application. If a bank is not required to collect data under HMDA, it would not be required to start to do so due to the FHFA’s requirement. It would just need to ensure that if data were collected pursuant to Regulation B, that it would be provided to any subsequent covered servicer.
Servicers of Fannie or Freddie loans would never ask the borrower for the information, but must ensure the data (if there are any) transferred to it from originators or previous servicers are retained, and transferred to any subsequent servicer. According to both Fannie and Freddie, servicers may, but are not required to, update the data in the event of a future transfer of ownership or assumption.
Additionally, in May 2023 the Lender Record Information (Form 582 for Fannie Mae lenders), submitted annually, will be updated to require that servicers certify that they are in compliance with these policies with each required submission.
- Collecting and Maintaining Preferred LanguageThis requirement provides that originators of conventional loans sold to Fannie Mae or Freddie Mac must collect the borrower’s language preference. The issue of requesting a borrower’s language preference is a bit of a tortured one; during the development of the new Uniform Residential Loan Application form, or URLA (which became required on March 1, 2021), there was a back-and-forth discussion as to whether this question would be included on the application itself. In the end, it was not. As Fannie Mae stated in its Frequently-Asked Questions, the “Federal Housing Finance Agency (FHFA) determined that the redesigned URLA is not the appropriate vehicle to collect data on a borrower’s preferred language.”However, in May 2022 the FHFA announced that the Supplemental Consumer Information Form (SCIF), which is a required document provided to borrowers and included in the loan file for new conventional loans sold to Fannie or Freddie, would be amended to include the borrower’s language preference. The information is voluntary and the borrower is not required to complete it, although lenders must present it. This also became required on application dates on or after March 1, 2023.
A borrower’s choices are English, Chinese, Korean, Spanish, Tagalog, Vietnamese, Other (with a field the borrower may complete), and “I do not wish to respond.”
(Note that the SCIF also contains information on homeownership education and housing counseling the borrower may have completed.)
During the debate on whether to include the preferred language question onto the URLA, there was concern expressed that if a borrower indicated he or she preferred Spanish, for instance, it would then impose some sort of duty or responsibility onto the lender and/or servicer to communicate in Spanish. That concern is mitigated by language within the Language Preference section of the SCIF:
Your loan transaction is likely to be conducted in English. This question requests information to see if communications are available to assist you in your preferred language. Please be aware that communications may NOT be available in your preferred language.
And:
Your answer does not mean the Lender or Other Loan Participants agree to communicate or provide documents in your preferred language. However, it may let them assist you or direct you to persons who can assist you.
In the FHFA’s May 2022 press release announcing the SCIF with the preferred language question, CFPB Director Chopra weighed in, stating “The collection of applicants’ language preference does not violate the Equal Credit Opportunity Act or its implementing regulations.” However, there was no such confirmation from the CFPB on whether the new requirement for servicers to maintain age, race, ethnicity, and gender similarly do not violate ECOA or Regulation B. There will be situations where servicers who are not covered under either HMDA’s or Regulation B’s data collection requirements will now be required to maintain demographic information on borrowers (even though they did not collect it themselves). But until the CFPB states that such maintenance of data is not in compliance (which is unlikely), the requirement must certainly be followed by covered servicers.
Language preference information must be maintained and transferred by servicers in the same manner as age, race, ethnicity, and gender data, meaning it must be provided to the new servicer during a sale or transfer of servicing rights.
As more fair lending-related data becomes available to various government entities (as well as to the public), it only emphasizes the critical importance for each lender to do its best to ensure fair lending compliance.
As seen in ABA Banking Compliance Magazine – March / April 2023