In the Consumer Financial Protection Bureau's (CFPB) largest Home Mortgage Disclosure Act (HMDA) penalty to date, the Bureau hit a major mortgage servicer with a $1.75 million penalty for allegedly failing to report accurate data about mortgage transactions over a two-year period.

What happened

The mortgage servicer—a nonbank mortgage lender—has almost 3 million customers in the mortgage servicing and origination markets. It earns its fees through servicing, origination, and other real estate-based services.

According to the CFPB allegations, the company "consistently" failed to report accurate data about mortgage transactions from 2012 to 2014, in alleged violation of the HMDA. The 1975 statute requires that mortgage lenders collect and report data about their mortgage lending not only to the appropriate federal agencies but also make it available to the public.

During its supervision process, however, the Bureau claims it found that the servicer's compliance systems were flawed and generated mortgage lending data with "significant, preventable errors." Because the company failed to consistently define data among its various lines of business, it produced discrepancies, the CFPB alleges.

These problems occurred after a history of HMDA non-compliance, the Bureau claimed. The same servicer reached a settlement with the Massachusetts Division of Banks in 2011 to address HMDA compliance deficiencies (a deal that included a $25,000 payment). Despite this, the CFPB claims that samples showed "substantial" error rates in three consecutive reporting years after that settlement, the Bureau alleged: 13 percent in 2012, 33 percent in 2013, and 21 percent in 2014.

To settle the CFPB's charges, the servicer agreed to a consent order requiring the company to pay a $1.75 million penalty—the largest the Bureau has ordered to date for violations of the HMDA—and change its practices.

Although the CFPB acknowledges that the company has already taken steps to further its compliance and increase accuracy since the Bureau's examination, the CFPB has nonetheless directed the servicer to develop and implement an effective HMDA compliance management system, undertaking any necessary improvement to prevent future violations. In addition, the servicer was directed to review, correct, and make available the corrected HMDA data for the applicable time period between 2012 and 2014.

To access the consent order, click here.

Why it matters

Once again, the CFPB is using enforcement actions as a substitute for legitimate rulemaking. Here, in a warning to others that may have more significant operations, the CFPB reached its record-setting HMDA civil penalty based on the servicer's market size, the alleged substantial magnitude of its errors," and the company's alleged history of previous violations, the CFPB said. Despite little evidence that the servicer was a true recidivist, director Cordray insisted that "[f]inancial institutions that violate the law repeatedly and substantially are not making serious enough efforts to report accurate information." The action "send[s] a strong reminder that HMDA serves important purposes for many stakeholders in the mortgage market, and those required to report this information must make more careful efforts to follow the law."