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CFPB finds Freedom Mortgage intentionally reported inaccurate HMDA data

Bureau hits Freedom with fine for HMDA reporting errors

Loan officers at Freedom Mortgage intentionally reported inaccurate Home Mortgage Disclosure Act data over a several-year period, the Consumer Financial Protection Bureau said Wednesday.

The CFPB announced it is fining Freedom Mortgage, one of the country’s largest lenders, for submitting HMDA data to the bureau that contained “errors” from 2014 through 2017.

According to the bureau, an investigation found that Freedom reported “inaccurate race, ethnicity, and sex information” and that “much of Freedom’s loan officers’ recording of this incorrect information was intentional” during that time.

The bureau stated that “certain loan officers” at Freedom were told by their managers or other loan officers to select “non-Hispanic white” for the ethnicity of loan applicants who elected not to provide information about their race or ethnicity, regardless of whether they were actually white or not.

HMDA regulations require covered lenders to collect, record, and report each loan applicant’s and co-applicant’s race, ethnicity, and sex.

At issue was Freedom’s proprietary electronic system-of-record, which the CFPB identifies as “Lakewood.”

As part of the loan process, loan officers would enter applicants’ information into Lakewood, but if certain information was missing, the system would generate a “hard stop” that would prevent the loan file from moving forward in the process.

According to the CFPB, if loan applicants did not provide their race or ethnicity over the phone, loan officers were instructed to enter the borrowers’ information in a way that created a “hard stop.”

But, some loan officers had a method to “get around” the hard stop, according to the CFPB.

“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),” the CFPB said in its consent order.

According to the bureau, the system programming that created this hard stop was in place from 2014 through October 2017, and the practice of entering non-Hispanic white into the system whether it was true or not was not limited to a “specific location, loan officer, or time period,” the CFPB said.

During the time period in question, Freedom employed more than 700 loan officers at a time in six to eight call centers and generated most of its HMDA-reportable loan applications through these call centers.

Freedom also ranked among the top 10 lenders in the country during that period, as defined by their HMDA reporting data.

According to the bureau, this misreporting of HMDA data was found when the bureau reviewed audio recordings of loan applications being taken over the phone.

The CFPB’s consent order states that out of approximately 430 applicants from 2014 through part of 2017 reviewed by the CFPB, at least 125 applicants did not provide the requested race and/or ethnicity, but Freedom reported these applicants as non-Hispanic white.

Freedom also misreported borrower data in an additional way in approximately 300 cases.

According to the CFPB, Freedom incorrectly reported mortgage applicants as non-Hispanic white even though the applicants had stated that they were not white. As a result, Freedom overstated its number of non-Hispanic white applicants.

“Much of [Freedom’s] loan officers’ reporting of incorrect race, ethnicity, and sex information was intentional,” the CFPB concluded.

The bureau noted that Freedom “in the interest of compliance and resolution of the matter, and without admitting or denying any wrongdoing,” consented to the settlement.

Under the terms of the settlement, Freedom must pay a civil money penalty of $1.75 million and “take steps to improve its compliance management to prevent future violations.”

In a statement, Freedom noted that no customers were harmed by the reporting issues.

“Freedom Mortgage values and respects its relationship with all its customers and all consumers considering home financing. As one of the nation’s 10 largest mortgage lenders, Freedom Mortgage has experienced tremendous growth over the past five years by constantly improving business processes to create great lending experiences for customers,” Freedom Mortgage said in a statement.

“While the issue raised by the CFPB has resulted in no harm to our customers, Freedom Mortgages takes reporting consumer information very seriously and is fully cooperating with the CFPB on this matter,” the company continued. “The company is and has always been committed to ensuring compliance with data collection, recording and reporting requirements as well as delivering a high quality customer experience.”

To read the CFPB’s consent order in full, click here.

[Update: This article is updated with a statement from Freedom Mortgage.]

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