Independent Banker - April 2024 - 35

Next: Storytelling's role at ICBA Capital Summit 
around how much risk they wish to
take on when entertaining business
clients and associates, " says Ron
Haynie, ICBA's senior vice president
of mortgage finance policy.
Freedom also rented space in
real estate agents' offices and
placed loan officers there, under a
marketing services agreement.
" But those are very, very
dangerous, " Haynie says. " These
agreements have to be constructed
in a certain way and there cannot
be anything that mentions
expectations about X number of
referrals for loans per week. Most
community banks don't want to
take on that compliance risk, so
they stay away from these kinds
of arrangements. "
HMDA violations
Separately, the CFPB in October
filed a lawsuit alleging that Freedom
submitted mortgage loan data that
had numerous errors. According
to the CFPB, Freedom's practices
violate both the Home Mortgage
Disclosure Act (HMDA) and a 2019
consent order.
CFPB also discovered in 2019
that Freedom had intentionally
misreported HMDA data about its
applicants' race and ethnicity. For
example, Freedom's managers or
loan officers had told other loan
officers to select " non-Hispanic
white " when applicants did not
provide their race or ethnicity, even
though it was potentially inaccurate.
The 2019 order required
Freedom to pay a separate $1.75
million penalty, improve its
compliance management system
and avoid future HMDA violations.
The lawsuit filed in October states
there were many errors across
multiple data fields in Freedom's
2020 HMDA data, and these errors
constitute violations of HMDA, the
" Section 8 is extremely broad,
so banks need to develop a
policy around how much risk
they wish to take on when
entertaining business clients
and associates. "
-RON HAYNIE, ICBA
Consumer Financial Protection Act
and the 2019 order.
Under the CFPB compliance
guide for HMDA, if a prospective
borrower chooses not to disclose
their ethnicity, race and sex on
their mortgage application, then
the lender must provide that
information based on visual
observation or surname.
While a borrower can self-identify
their race and ethnicity under
subcategories-such as Mexican,
Puerto Rican or Cuban under the
Hispanic category, or Vietnamese,
Chinese or Cambodian under the
Asian category-lenders are not
permitted under HMDA to describe
the borrower using subcategories
if the borrower chooses not to selfidentify.
Rather, lenders must stick
to the general categories based on
visual observation or surname.
" Banks should make sure that
employees understand the mortgage
loan application process, what
information is required and why, "
Haynie says. " Banks need to make
sure that their loan officers are
properly trained to provide this
information and complete that
section of the application if the
borrower chooses not to. "
If lenders collect information
from borrowers online, in the mail
or during phone calls, and the
borrower chooses not to provide
their sex, race or ethnicity, lenders
must report that the information was
not provided in a mail, internet or
telephone application.
" Lenders can also have a follow-up
conversation with the borrower
and ask for that information
to be completed, " Haynie says.
" Borrowers also have an opportunity
at the closing table to complete
any information there if they so
desire, or lenders can make a visual
observation at that time. "
According to him, it all comes
down to training. " Loan officers
need to be aware of the compliance
risks of certain activities, and that's
where the bank's compliance officer
can help, " Haynie says. " They can
increase training around RESPA
and HMDA to make sure that the
bank is in full compliance of all these
rules-because those fines can be
very expensive. "
As a note of caution, he adds:
" There's a reputational issue that
community banks certainly don't
want to have. "
Katie Kuehner-Hebert is a writer
in California.
independentbanker.org // 35
http://www.independentbanker.org
Independent Banker - April 2024

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