CFPB levies its largest ever mortgage reporting penalty

The Consumer Financial Protection Bureau has ordered Texas-based Nationstar Mortgage to pay a $1.75 million civil penalty for violations of the Home Mortgage Disclosure Act and “consistently failing to report accurate data about mortgage transactions for 2012 through 2014.”

The March 16 action is the largest HMDA civil penalty imposed by the Bureau to date, owing to “Nationstar’s market size, the substantial magnitude of its errors, and its history of previous violations.”

Nationstar had been on notice since 2011 of HMDA compliance problems. In addition to paying the civil penalty, The company must take the necessary steps this time to improve its compliance management and prevent future violations, the CFPB said in a statement.

Nationstar, a nationwide nonbank mortgage lender headquartered in Coppell, Texas, is a wholly owned subsidiary of Nationstar Mortgage Holdings Inc. With nearly 3 million customers, it is a major participant in the mortgage servicing and origination markets.

The company and its subsidiaries earn fees through servicing, origination, and other real estate-based services.

According to 2014 data, Nationstar was the ninth-largest HMDA reporter by total mortgage originations, the sixth largest by applications received, and the 13th largest by money lent. From 2010 to 2014, the number of HMDA mortgage loans serviced by the company increased by nearly 900 percent.

The Home Mortgage Disclosure Act of 1975 requires many mortgage lenders to collect and report data about their mortgage lending to appropriate federal agencies and make it available to the public. Federal regulators, enforcement agencies, community organizations, and state and local agencies use the information to monitor whether financial institutions are serving housing needs in their communities.

The reporting requirements help direct public-sector investment to attract private investment to areas where it is needed. Data is also used to help identify possibly discriminatory lending patterns, and compliance with the Equal Credit Opportunity Act, the Fair Housing Act, and the Community Reinvestment Act.

In 2013, the CFPB issued a bulletin putting mortgage lenders on notice about the importance of submitting correct mortgage loan data. It has subsequently conducted HMDA reviews at dozens of bank and nonbank mortgage lenders, and has found that many lenders have adequate compliance systems and produce HMDA data with few errors.

In its supervision process, the Bureau found that Nationstar’s HMDA compliance systems were flawed, and generated mortgage lending data “with significant, preventable errors.” The firm also failed to maintain detailed HMDA data collection and validation procedures, and failed to implement adequate compliance procedures. Discrepancies arose from failures to consistently define data among its various lines of business.

According to the CFPB, Nationstar has a history of HMDA non-compliance. In 2011, it reached a settlement with the Commonwealth of Massachusetts Division of Banks to address HMDA compliance deficiencies. The samples reviewed by the CFPB showed substantial error rates in three consecutive reporting years, even after that settlement was reached. In the samples reviewed, the Bureau found error rates of 13 percent in 2012, 33 percent in 2013, and 21 percent in 2014.

In 2015, the CFPB published a rule updating HMDA data collection and reporting. This rule will improve the quality and type of data that is collected and reported, and shed more light on consumers’ access to credit. Most of the rule’s provisions take effect on Jan. 1, 2018.

The CFPB’s Order requires Nationstar to:

Pay a $1.75 million penalty: Nationstar will pay a $1.75 million penalty to the CFPB’s Civil Penalty Fund.

Develop and implement an effective compliance management system.

Assess and undertake any necessary improvements to its HMDA compliance management system to prevent future violations.

Fix HMDA reporting inaccuracies.

Review, correct, and make available its corrected HMDA data from 2012–2014.

Since the CFPB’s examination, Nationstar taken steps to improve its HMDA compliance management system and increase the accuracy of its HMDA reporting.

The CFPB’s action against Nationstar pertains to data for 2012-20114 that was collected and reported under rules that predate the Bureau.

A statement by Nationstar Mortgage stresses that the settlement does not reflect any wrongdoing affecting customers or fair lending; but rather, technical data issues “that we have worked tirelessly to resolve through significant investments.”

“Nationstar understands how accurate HMDA data is critical to fair lending, and we regret the mistakes that led to the reporting errors,” the firm said. “These data issues are not reflective of our customer and compliance-driven business practices, and we remain committed to treating every applicant fairly and responsibly.”

During the past two years, Nationstar has proactively made substantial investments in new staff, training and technology to enhance all of our HMDA-related processes and controls, the statement says. Moving forward, it “will continue to foster a culture of compliance, ethics and innovation.”