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CFPB / RegulatoryUncategorized

FHFA language disclosure rule stokes fears of legal blowback

Starting March 2023, lenders for conventional mortgages must disclose language preference data

The Federal Housing Finance Agency will now require lenders to provide data on borrowers’ language preferences in order to sell loans to Fannie Mae and Freddie Mac, a move which could invite fair lending lawsuits.

Starting in March 2023, lenders for conventional mortgages will be required to furnish information about borrowers’ language preference and housing counseling, the agency said on Tuesday. Sandra Thompson, acting director of the FHFA, said in a statement that the disclosures will help the industry “more fully respond to the nation’s growing diversity.”

“These steps will contribute to an equitable housing finance system that welcomes all qualified borrowers,” said Thompson.

Rohit Chopra, director of the Consumer Financial Protection Bureau, assured lenders in a statement that the act of collecting the data “does not violate the Equal Credit Opportunity Act” or regulations based around implementing that law.

But what the federal government will do with the data after it is collected is less clear.

The disclosure requirements could potentially be another data point for fair lending lawsuits. Regulators have in recent history relied on lenders’ language access deficiencies to pursue claims of lending discrimination.


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In August 2021, the Department of Justice and the Office of the Comptroller of the Currency used the bank’s lack of Spanish-language marketing materials or loan officers with Spanish language skills to bring down the hammer on Cadence Bank for redlining. The bank, whose assets total over $18 billion, paid $8.5 million to settle the charges.

Richard Horn, a partner at Garris Horn and counsel to a Chicago-based mortgage lender defending against a Consumer Financial Protection Bureau redlining lawsuit, said the disclosure requirement “poses additional fair lending risk.”

“This could be used for new types of fair lending claims, similar to marketing claims, or language preference could be an additional data for discrimination claims,” said Horn.

One potential wrinkle is that the data will be in FHFA’s hands, rather than bank regulators, the DOJ or the CFPB. The FHFA does not regulate lenders directly. The CFPB already receives race and ethnicity data via its Home Mortgage Disclosure Act rule. The CFPB typically conducts statistical analyses of U.S. Census Bureau data and HMDA data in preparing redlining lawsuits.

But there are at least several clear ways the language preference data could wind up in the CFPB’s, and other regulators’, hands.

Already, FHFA has reported to these regulatory agencies GSE-backed mortgage lenders for loan-pricing disparities for non-white borrowers. Last summer alone, during Thompson’s initial months as acting director, the FHFA referred 152 lenders to federal regulatory and enforcement agencies for findings of such disparities, according to its annual report.

If not through those formal channels, the topic of language preference data might come up during Thompson and Chopra’s monthly calls. The FHFA could also share the data with HUD, in light of a memorandum of understanding between the two federal agencies to share data for oversight of the GSEs’ fair housing and fair lending compliance.

FHFA declined to comment. HUD did not return a request for comment.

A CFPB spokesperson said that the agency supports FHFA’s efforts to encourage institutions to expand language preference data collection, but declined to comment on “potential litigation theories.”

Data collected from the form will be reported to the government sponsored enterprise purchasing the loan. While the reporting requirements for lenders are mandatory in order to do business with Fannie Mae and Freddie Mac, borrowers may choose not to respond to the preferred language question.

Fannie Mae, in its latest communiqué to lenders, said that it will implement the change by striking language that allowed lenders to use their discretion in filling out the form. Both the GSEs will publish guidance to formalize the change in July 2022, per Fannie Mae’s announcement.

EDITOR’S NOTE: This story has been updated with a statement from the CFPB.

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