October 16, 2015
Enhancing Mortgage Data and Litigation Risk
Law360 quoted me in CFPB Data Collection Boost May Bring More Lending Cases (behind a paywall). It reads, in part,
The Consumer Financial Protection Bureau has given lenders more time to prepare for its new mortgage data reporting rule and streamlined some of the information lenders will have to provide to regulators, but worries persist that the new data will be used to bring more fair-lending enforcement actions.
The federal consumer finance watchdog on Thursday released a final version of its update to the Home Mortgage Disclosure Act — a key tool that regulators for decades have used to determine which populations were receiving home loans and which were being shut out — that more than doubles the amount of information that lenders will have to provide about the mortgages they issue.
That alone will make for a major technical overhaul of lenders’ operations, an overhaul that is likely to be expensive both in purchasing and developing new technology but also in the number of hours lenders will have to spend to get up to speed. But a second concern revolves around the vast new amount of information that the CFPB will have, and how it could use that information to review lenders’ compliance with fair-lending laws, said Donald C. Lampe, a partner with Morrison & Foerster LLP.
“I don’t think the full cost has yet been established, and I think what you’re seeing here are that there are concerns that this level of granular data can be misinterpreted,” he said. “There’s enough information here from a practical standpoint to re-underwrite the loan.”
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“My position is that collecting more data about the mortgage market is a very good thing for consumers,” said David Reiss, a professor at Brooklyn Law School. “The more data [lenders] provide, the more likely it is that academics or the feds could find patterns of discriminatory lending.”
The added litigation risks do not come solely from the CFPB. The HMDA data is released publicly each year, meaning that activist groups, state regulators and plaintiffs attorneys will be able to comb through the vastly more comprehensive information, said Warren Traiger, counsel at BuckleySandler LLP.
“This is public data, so in addition to bank examiners and the [U.S. Department of Justice utilizing the data, there’s nothing preventing state attorneys general from using it as well,” he said.
And when state regulators, private plaintiffs or other parties come along with new complaints, the expanded data set will allow them to make far more specific discrimination claims than the current HMDA data makes possible.
“There will be a number of additional fields that will be out there that will allow regulators and the public to make more specific allegations regarding discrimination in mortgage lending than the current HMDA data allows,” Traiger said.
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