The Consumer Financial Protection Bureau filed a federal lawsuit Tuesday against Freedom Mortgage Corp., one of the largest nonbank mortgage lenders, alleging the company submitted data on home loan applicants that was riddled with errors, in violation of the Home Mortgage Disclosure Act.
In a 10-page lawsuit filed in U.S. District Court for the Southern District of Florida, the CFPB said that Freedom Mortgage violated a 2019 consent order that resulted from revelations that it intentionally misreported data concerning the race, ethnicity, and sex of loan applicants from 2014 to 2017. Freedom, based in Boca Raton, Florida, originated nearly 400,000 loans in 2020, making it the fifth largest mortgage lender in the U.S. by origination volume. The company provided data on more than 700,000 loans and applications.
"The CFPB is suing Freedom Mortgage for violating a law enforcement order and for providing false data on its mortgage operations," CFPB Director Rohit Chopra said in a press release. "The CFPB will continue to focus on ending the cycle of misconduct by repeat offenders in the financial industry."
The suit claims that despite an awareness of "pervasive deficiencies in its policies, procedures and systems," Freedom failed to make adequate changes to fix its problems.
The company intentionally submitted inaccurate borrower information overstating the number of white applicants, the consumer bureau alleges in a consent order.
Freedom was founded by mortgage industry veteran Stan Middleman, the company's president and CEO, who has been in the crosshairs of the CFPB for several years. In 2019, Freedom Mortgage was fined $1.75 million by the CFPB for misreporting the race, ethnicity or gender of home loan applicants in several hundred incidents, according to the CFPB.
The agency now alleges that mortgage loan data submitted by Freedom in 2020 also contained widespread errors across multiple data fields that not only violates HMDA and Regulation C, its implementing regulation, but that the company also violated the 2019 consent order and the Consumer Financial Protection Act of 2010. The CFPB said the 2019 consent order remains in effect through June 2024.
"Freedom's violations continued because of pervasive deficiencies in its policies, procedures and systems to collect and report HMDA data and because, despite knowing its systems were faulty, it failed to implement adequate changes to its HMDA compliance management system to ensure the accuracy of its HMDA data," the CFPB said in the lawsuit. "As a result, Freedom has violated HMDA, its implementing Regulation C, the CFPA, and the 2019 Order."
Congress enacted HMDA, a type of sunshine law, in 1975 to collect data and report on mortgage applicants as a way to monitor and provide transparency into lending and root out discrimination.
In 2021, Freedom submitted data on 700,000 home loan applicants that the CFPB said contained "significant errors," including improperly classifying certain loan applicants as being "approved but not accepted," when the loans were actually withdrawn, which caused errors in other data fields. In addition, the CFPB said Freedom made errors in entering data related to subordinate lien loans and purchased loans. It also claimed the company reported loans under HMDA that did not meet the definition of a "reportable application."
A spokeswoman for Freedom did not immediately respond to a request for comment.
The CFPB said that Freedom also made inaccurate calculations of the rate spread on loans, which caused errors in other related data fields, and also reported inaccurate data for lender credits. The bureau found 51 data errors in an initial review of 159 files.
"The error rates in these fields were significant enough to require Freedom to resubmit its 2020 HMDA data," the bureau said in the lawsuit.
But the CFPB alleges the errors continued. When Freedom resubmitted its 2020 HMDA data to correct the errors, the company made changes to over 174,000 data entries in 35 different data fields, or nearly 20% of all mortgage loans applications, the bureau said.
"Many errors in Freedom's 2020 HMDA data were caused by widespread, systemic issues and compliance management systems failures, not isolated one-off mistakes," the bureau said in the lawsuit.
The bureau also said that Freedom conducted an internal audit that found certain "steps and operations supporting creation of the HMDA [Loan Application Register] are missing from or incompletely captured in process documents."
The CFPB asked the court to stop the company from committing future violations of HMDA and require it to comply with the law. The CFPB also is requesting unspecified injunctive relief, a civil money penalty and reimbursement for its costs and other relief.
