Fair Servicing Deadline: Counting Down to March

Mortgage servicers have until March 1, 2023, to comply with fair lending data collection and maintenance requirements announced by Fannie Mae and Freddie Mac (the GSEs). This article explains what is required and why that data may already be just a query away.

At the direction of the Federal Housing Finance Agency (FHFA), Fannie Mae and Freddie Mac announced in August that servicers will be required to capture and maintain fair lending data, including the borrower’s race, ethnicity, age, and gender if collected by the originator.  Additionally, servicers must collect and maintain each borrower’s preferred language. These data elements must be stored in a format that can be searched, queried and transferred.

Unlike originators, servicers do not have to collect or report borrower demographics under the Home Mortgage Disclosure Act (HMDA).  As a result, servicer policies vary on what borrower demographic information is maintained and where it resides. Now that the GSEs are requiring maintenance of this information so it can be servicing transferred, many servicers want to house this data on their servicing platforms, even if the information historically resides elsewhere. The GSEs have not indicated any reporting requirements or data standards for this information unlike the very specific AUS data specifications for GSE originators and the CFPB’s HMDA data reporting requirements and formats.

The good news is, neither originators nor servicers have to reinvent the wheel. Originators already capture and report borrower demographic information as part of HMDA obligations. In many cases, compliance for servicers may be simply a matter of mapping back to those origination datapoints.  Servicers may want to follow HMDA’s expanded subcategories for race and ethnicity but also collect the information for more than the borrower and co-borrower.

Why the Focus on Fair Servicing?

In the press release announcing the new requirements, FHFA director Sandra Thompson is quoted as saying that “having fair lending data travel with servicing will help servicers do the important work of providing assistance to borrowers in need, helping to further a sustainable and equitable housing finance system.”​

While definitive reporting requirements have yet to be announced, one can anticipate that any such information will be used to evaluate servicing practices.  Moreover, such information may prove valuable in determining whether various GSE programs and policies, such as loss mitigation options, reached their anticipated goals and expectations.  Given the likelihood of additional regulatory oversight in this area, servicers should proactively analyze their data and identify and address any unintended results.  Black Knight’s Data & Analytics division is already helping MSP customers do some trending and analysis.

Preparing for the New Data Maintenance Requirements

As with any new policy, there are always additional considerations servicers should account for to fully implement a policy change:

• Servicers should determine their approach. The requirements do not specify that servicers follow any particular data standard (e.g., HMDA, MISMO, GSE, etc.), or to any particular level of granularity. For example, should servicers collect HMDA defined regional subcategories under race and ethnicity? Or should they go further and exceed HMDA’s reporting standard? As a mission critical component of our clients’ businesses, our technology must anticipate the broadest interpretation.
• The GSEs do not dictate where the data must reside. However, most servicers favor adding the data elements onto their servicing platforms to allow for better analytics, transferability, and functionality in the event of future reporting or process requirements.
• Servicers should begin a dialogue with their servicing technology providers or repositories and discuss how the information will map over from their loan origination systems (LOS) and other origination systems if purchasing servicing is released.
• Servicers should consider downstream implications. For example, many servicers already collect language preference and tie this information to various processes, such as letter generation.  Servicers should determine if this new data collection will impact existing functionality and whether the GSE data should remain independent.

The Countdown Has Begun

Now is the time to begin preparations. While the GSEs’ policies become effective on loans originated on or after March 1, 2023, servicers may implement the changes sooner.

Understanding the requirements, determining what data needs to move to the servicing system, and establishing how to map the data from the LOS into your servicing system or repository are critical first steps.

For more information on how Black Knight can help your organization comply with the new FHFA Fair Servicing requirements, email us at AskBlackKnight@bkfs.com.