Freedom Mortgage, CFPB dealt setbacks in HMDA lawsuit

A federal court has dealt minor blows to both the Consumer Financial Protection Bureau and Freedom Mortgage in the regulator's complaint over alleged bad loan data submissions.

U.S. District Judge Donald M. Middlebrooks last week denied Freedom's move to toss the lawsuit accusing it of submitting error-riddled Home Mortgage Disclosure Act data in 2020. The CFPB claims Freedom's errors stemmed from poor infrastructure, which should have been fixed following prior HMDA violations. 

Freedom argued, among other points, that HMDA and its Regulation C requirements for accuracy were unconstitutionally vague. Such a scenario preventing the CFPB from ever seeking relief against incorrect data would be absurd, Middlebrooks wrote.

"I am certain that any reasonable borrower would dispute such a premise: to be accurate, the data must be veracious and credible," wrote the judge. "Common sense regarding the meaning of Regulation C's plain text cuts Defendant's argument off at its knees."

While the case is scheduled to move on, a magistrate judge appointed to oversee pretrial proceedings last month handed Freedom a victory in seeking more information from the CFPB. 

The lender requested anonymized data from the regulator regarding other lenders who resubmitted HMDA data since 2019, in order to determine the gravity of Freedom's actions. The CFPB argued against the release of such information on numerous grounds, including that the data was privileged, not relevant to the case and would be overly burdensome to collect.

"This information does not implicate attorney-client privilege, or the bank examination, law enforcement, or deliberate process privileges, as it involves a comparison of data," wrote U.S. Magistrate Judge William Matthewman in an April 5 order.

Matthewman also said the CFPB failed to provide an affidavit to attest to the burdensomeness of the request.

It's unclear if the CFPB has provided the data to Freedom yet. The case also includes a protective order to keep privileged information out of public view. 

Both the CFPB and Freedom declined to comment, while attorneys for both sides didn't respond to inquiries Wednesday.

The lawsuit filed last October originated from Freedom's submission of 2020 HMDA data in February 2021. The CFPB claimed it found 51 data errors in a 159-file sample, prompting Freedom to file a resubmission. The September refiling of 2020 data included revisions to 174,000 data entries, the complaint said.

Freedom's haphazard submission violated a consent order it signed in 2019, when it paid a $1.75 million fine for HMDA violations between 2014 to 2017. The order, which was set to expire this June, required Freedom to improve its HMDA data collection practices. The regulator claims an undated internal Freedom audit warned the lender its processes needed improvement. 

The private lending and servicing giant, in fighting the charges, also argued the suit should be tossed on the regulator's unconstitutional funding structure. Middlebrooks, the senior judge, said he wouldn't rule on that argument until the U.S. Supreme Court issued its anticipated ruling on the argument this term. 

The parties are scheduled to go to trial in July. The sides also met in mediation in March with no resolution, although according to a court filing settlement discussions would continue.