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Federal Register / Vol. 86, No. 128 / Thursday, July 8, 2021 / Notices
example, examiners observed Origination Charges, displayed as zero within source documentation, inaccurately reported as Not applicable. The Origination Charges field should be entered, in dollars for the total of all itemized amounts that are designated borrower-paid at or before closing. If the total is zero, enter 0. Enter NA if the requirement to report origination charges does not apply to the covered loan or application that the institution is reporting.
2.5.4 HMDA Supervisory Actions In response to widespread HMDA
LAR inaccuracies identified during examinations, institutions will review, correct, and resubmit their HMDA
LAR.76 Some institutions have already resubmitted their HMDA LARs.
In addition, institutions will enhance monitoring practices to ensure they are completed timely and appropriately identify and measure HMDA risk. Some institutions will develop and implement an effective HMDA monitoring program that prevents, detects, and corrects violations of HMDA and Regulation C, and ensures appropriate corrective actions are taken.
Some institutions will make improvements to CMS components that were the cause of errors, including through 1 implementation of policies, procedures and/or a plan that ensures that fields that had errors are reported accurately; 2 improvements to board and management oversight to ensure that the board and management promptly responds to CMS deficiencies and violations of Regulation C; and 3
improvements to their HMDA training program regarding collecting and recording data for the HMDA LAR, including ensuring it is specifically tailored to staff with responsibilities relating to HMDA.
2.5.5 Redlining Regulation B prohibits discouragement of applicants or prospective applicants. Specifically, it states: A creditor shall not make any oral or written statement, in advertising
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76 On
December 21, 2017, the Bureau issued a Statement with respect to HMDA compliance announcing among other things that the Bureau does not intend to assess penalties for errors in data collected in 2018 and that the Bureau does not intend to require data resubmission unless errors are material. See Consumer Fin. Prot. Bureau, CFPB
Issues Public Statement On Home Mortgage Disclosure Act Compliance Dec. 21, 2017, available at https www.consumerfinance.gov/
about-us/newsroom/cfpb-issues-public-statementhome-mortgage-disclosure-act-compliance/. During examinations of 2018 data in which CFPB
Supervision required financial institutions to resubmit data, Supervision concluded that the errors identified were material.

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or otherwise, to applicants or prospective applicants that would discourage on a prohibited basis a reasonable person from making or pursuing an application. 77 The Official Interpretations of Regulation B also explain that this prohibition covers acts or practices directed at prospective applicants that could discourage a reasonable person, on a prohibited basis, from applying for credit. 78
In the course of conducting supervisory activity, examiners observed that a lender violated ECOA
and Regulation B by engaging in acts or practices directed at prospective applicants that would have discouraged reasonable people in minority neighborhoods in Metropolitan Statistical Areas MSAs from applying for credit.
Initial statistical analysis of the HMDA data and U.S. census data showed that the lender received significantly fewer applications from majority-minority and high-minority neighborhoods relative to other peer lenders in the MSA, which resulted in the prioritization of the institution for a redlining examination. The examination teams subsequent, in-depth analyses, including general and refined peer analyses, confirmed these differences relative to its peer lenders in the MSA.79
Examiners identified evidence of communications directed at prospective applicants that would discourage reasonable persons on a prohibited basis from applying to the lender for a mortgage loan. First, the lender conducted a number of direct mail marketing campaigns that featured models, all of whom appeared to be non-Hispanic white. Second, the lender included headshots of its mortgage professionals in its open house marketing materials, and in almost all of these materials, the headshots showed only professionals who appeared to be non-Hispanic white. Third, the lenders office locations were nearly all concentrated in majority non-Hispanic white areas, as confirmed by the lenders website communicating where the offices are located. Each of these acts or practices is a form of communication directed at prospective applicants.
Also, the lenders direct marketing campaign and Multiple Listing Service MLS advertising was focused on majority-white areas in the MSA, which provided additional evidence of its intent to discourage on a prohibited CFR 1002.4b.
CFR part 1002, supp. I, para. 4b1.
79 Examination teams defined majority-minority areas as >50% minority and high-minority areas as >80% minority.

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basis. In addition, the examination team determined that the lender employed mostly non-Hispanic white mortgage loan officers and identified emails among mortgage loan officers containing racist and derogatory content. The lender plans to undertake remedial and corrective actions regarding this violation, which are under review by the Bureau.
2.6 Mortgage Origination Supervision assessed the mortgage origination operations of several supervised entities for compliance with applicable Federal consumer financial laws. Examinations of these entities identified violations of Regulation Z and deceptive acts or practices prohibited by the CFPA.
2.6.1 Compensating Loan Originators Differently Based on Product Type Regulation Z generally prohibits compensating mortgage loan originators in an amount that is based on the terms of a transaction.80 Compensation is based on the term of a transaction if the objective facts and circumstances indicate that the compensation would have been different if a transaction term had been different.81 In the preamble to the Bureaus 2013 Loan Originator Final Rule, the Bureau responded to questions from commenters about whether it was permissible to compensate differently based on product types, such as credit extended pursuant to government programs for low-to moderate-income borrowers.82 As part of its response to these questions, the Bureau explained that it is not permissible to differentiate compensation based on credit product type, since products are simply a bundle of particular terms.83
Examiners found that lenders compensation policies specified lower compensation for originating a bond loan subject to requirements set forth by a State Housing Finance Agency HFA, and that the lenders followed these policies. Examiners also found that 80 12
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CFR 1026.36d1i.
CFR part 1026, supp. I, comment 36d1

1.i.
82 2013 Loan Originator Compensation Rule, 78
FR 11279, 11326 Feb. 15, 2013. The Bureau noted that the meaning of loan product is not firmly established and varies with the person using the term, but it generally refers to various combinations of features such as the type of interest rate and the form of amortization. Id. at 11284.
83 Id. at 1132627, note 82. The Bureau further noted in the preamble that permitting different compensation based on different product types would create precisely the type of risk of steering that the statutory provisions implemented through the 2013 Loan Originator Final Rule sought to avoid. Id. at 11328. The Bureau also declined to exclude State housing finance authority loans from the scope of the rule. Id. at 1133233.

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