On August 10, 2022, the Federal Housing Finance Agency (“FHFA”) announced that Fannie Mae and Freddie Mac (the “GSEs”) will require mortgage servicers to obtain and maintain fair lending data on their loans, beginning March 1, 2023. That same day, Fannie Mae and Freddie Mac (the “GSEs”) each issued guidance implementing the FHFA announcement.
FHFA and GSEs’ Announcements
In its announcement, the FHFA indicated that Fannie Mae and Freddie Mac will require mortgage servicers to obtain and maintain fair lending data, to include borrower age, race, ethnicity, gender, and preferred language (“Fair Lending Data”), and to ensure that this data transfers with servicing throughout the mortgage term. The announcement follows FHFA’s May 2022 announcement that Fannie Mae and Freddie Mac will require mortgage lenders to collect borrowers’ language preference data as part of the loan application process via a Supplemental Consumer Information Form (SCIF). Shortly after the FHFA announcement, Fannie Mae and Freddie Mac each announced that their respective guides had been updated to require servicers to maintain Fair Lending Data in a “queryable” format for each mortgage loan, if obtained during the origination process, for loans originated on or after Mach 1, 2023. Additionally, in instances of post-delivery servicing transfers, the transferor servicer must deliver to the transferee servicer the Fair Lending Data in a queryable format for each mortgage loan, if obtained during the origination process, for mortgage loans originated on or after March 1, 2023. In the event of a future transfer of ownership or assumption of the mortgage loan, servicers are authorized, but not required, to update the Fair Lending Data elements.
Of course, many mortgage servicers currently do not receive complete and accurate borrower demographic data from originating lenders in a readily accessible format for all loans in their servicing portfolio. And servicers may have different resources, capabilities, roles (master servicers vs. subservicer), and electronic systems, which may present additional limitations. For example, Home Mortgage Disclosure Act (“HMDA”) data currently may not transfer to a transferee servicer as part of a servicing transfer. The Fair Lending Data elements generally reflect data that is collected for HMDA-purposes. Therefore, mortgage lenders and servicers will need to ensure that the Fair Lending Data is transferred to the transferee servicer such that the data remains queryable post-transfer. Finally, even where a servicer has access to robust HMDA data, it is unlikely that all the fair lending data elements noted in the FHFA and GSE announcements would be available. For example, mortgage loan originators subject to the data collection requirements of HMDA are required to collect information regarding a consumer’s sex, but not their gender. In this case, it is unclear how much, if any, information a mortgage servicer will ultimately have regarding a consumer’s gender.
Ultimately, even if a servicer is able to obtain and maintain the required Fair Lending Data elements, it remains to be seen what servicers will be expected to do with that information. Depending on the quality and completeness of the data, the servicer may engage in statistical analysis in order to monitor for fairness in servicing outcomes, such as approval rates, foreclosure rates, and processing timelines for loss mitigation evaluations, as well as fee assessment/waiver rates for all serviced loans. Yet this monitoring can only be done if the various parties – originating lender, master servicer, and subservicer – work together to ensure that all necessary data is complete and travels with the servicing of the loan. Thus, mortgage lenders/servicers should begin evaluating their systems to ensure the required Fair Lending Data can be obtained and maintained in a queryable format. Moreover, mortgage lenders/servicers should reevaluate their servicing transfer protocols to ensure Fair Lending Data is transferred and onboarded seamlessly such that the data remains queryable. Finally, it will be interesting to see whether the federal agencies (i.e., HUD, VA, USDA) follow in the GSEs’ footsteps and impose similar fair lending data requirements.