The Consumer Financial Protection Bureau (CFPB) today ordered Nationstar Mortgage LLC to pay a $1.75 million civil penalty for violating the Home Mortgage Disclosure Act (HMDA) by consistently failing to report accurate data about mortgage transactions for 2012 through 2014. Today’s action is the largest HMDA civil penalty imposed by the Bureau to date, which stems from Nationstar’s market size, the substantial magnitude of its errors, and its history of previous violations. In fact, Nationstar had been on notice since 2011 of HMDA compliance problems. In addition to paying the civil penalty, Nationstar must take the necessary steps this time to improve its compliance management and prevent future violations.
"Financial institutions that violate the law repeatedly and substantially are not making serious enough efforts to report accurate information," said CFPB Director Richard Cordray. "Today we are sending a strong reminder that HMDA serves important purposes for many stakeholders in the mortgage market, and those required to report this information must make more careful efforts to follow the law."
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, Nationstar Mortgage Holdings 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, Nationstar’s number of HMDA mortgage loans 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 can use the information to monitor whether financial institutions are serving housing needs in their communities. It also helps direct public-sector investment to attract private investment to areas where it is needed. And the data is 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. Inaccurate HMDA data can make it difficult for the public and regulators to discover and stop discrimination in home mortgage lending or for public officials and lenders to tell whether a community’s credit needs are being met.
As part of its supervision of larger banks and nonbank mortgage lenders, the CFPB reviews the accuracy of HMDA data and the adequacy of HMDA compliance programs. In 2013, the CFPB issued a bulletin putting mortgage lenders on notice about the importance of submitting correct mortgage loan data. The CFPB has 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.
However, in its supervision process, the CFPB found that Nationstar’s HMDA compliance systems were flawed, and generated mortgage lending data with significant, preventable errors. Nationstar also failed to maintain detailed HMDA data collection and validation procedures, and failed to implement adequate compliance procedures. It also produced discrepancies by failing to consistently define data among its various lines of business. Nationstar has a history of HMDA non-compliance. In 2011, the Commonwealth of Massachusetts Division of Banks reached a settlement with Nationstar 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 CFPB found error rates of 13 percent in 2012, 33 percent in 2013, and 21 percent in 2014.
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: Nationstar will assess and undertake any necessary improvements to its HMDA compliance management system to prevent future violations.
Fix HMDA reporting inaccuracies: Nationstar must review, correct, and make available its corrected HMDA data from 2012–14.
Since the CFPB’s examination, Nationstar has been taking further steps to improve its HMDA compliance management system and increase the accuracy of its HMDA reporting.
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 action against Nationstar relates to data for 2012-14, which was collected and reported under the rule that predates the CFPB.