June 13, 2024

Freedom Mortgage challenges “vague” HMDA accuracy criteria

Freedom Mortgage says the Home Mortgage Disclosure Act’s accuracy requirement is “vague”, an argument it raised in a spat with a regulator over loan data submissions. 

The lender and servicer responded Monday to the Consumer Financial Protection Bureau’s federal lawsuit accusing Freedom of haphazard HMDA data submissions for 2020. The agency claims Freedom, in submitting errors, violated a 2019 consent order in which it paid $1.75 million for misreporting the race, ethnicity or gender of mortgage applicants.

Recent court filings don’t offer a clear picture of the accounting, but Freedom suggests its 2020 HMDA submission had an accuracy rate of 99.73%. Counsel for the lender say HMDA and its Regulation C requirements aren’t clear on a level of accuracy, if any, which is required. 

“The accuracy requirement in HMDA and Regulation C is unconstitutionally vague—there is no way for Freedom to determine from those laws what is required of it,” wrote Herman Russomanno III of Russomanno & Borrello P.A., a Miami-based firm. 

The CFPB declined to comment, while the Boca Raton, Florida-based Freedom and opposing attorneys didn’t return requests for comment this week. 

The 2020 HMDA submission in question included data on over 700,000 applications, originations and purchased loans. The CFPB required Freedom to resubmit after it found 51 data errors in a 159 file sample, its complaint said. Errors included tens of thousands inaccurate purchase types; inaccurate calculations of rate spread and loan apps marked as “approved but not accepted’ that were actually withdrawn. 

The revised filing in February 2021 included changes to almost 20% of all covered loans and 174,000 data entries, the lawsuit alleges. Freedom, taking HMDA’s 110 different data points into account, claims its 174,000 corrected entries among 70,000,000 data points represents an error rate of just 0.23%. 

Enforcement attorneys with the CFPB defend their enforcement with an analogy to the speed limit in a January filing. Drivers who go a few miles per hour over the speed limit likely won’t gain the attention of law enforcement, but they’re still violating the law, they said. 

“Agencies must exercise prosecutorial discretion with their limited resources – and doing so does not create a constitutional vagueness problem,” they wrote.

Lawyers for Freedom this week characterized the speed limit analogy as a straw man argument, stating speed limits are objective while “accuracy” is not a similarly self-defining concept. 

“What is absent is what constitutes a violation,” attorneys for the lender wrote about the rules.

The CFPB’s complaint also refers to an internal audit by Freedom which, during the time of the scrutinized HMDA submissions, contained a “high risk” finding over incomplete HMDA processes. The Bureau didn’t describe how it obtained the audit findings. 

The consent order Freedom agreed to in 2019 stemmed from HMDA violations between 2014-17. The agreement prohibits Freedom from violating HMDA regulations through June 2024.

A trial in the new case is scheduled to begin July 1, according to court filings. 

Freedom has consistently ranked among the nation’s top originators, recording almost $100 billion in refi volume in 2020 alone. The non-public mortgage giant had $13.5 billion in total assets as of September 2022, according to the CFPB’s complaint, and $3.1 billion in total equity. 

The Florida firm last year suffered a legal blow when a federal jury ordered it pay over $22 million in compensatory damages to LoanCare. That judgment was the culmination of a longrunning dispute over Freedom’s massive withdrawal from the subservicer’s custodial accounts. 

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