To sell loans to Fannie Mae and Freddie Mac, the Federal Housing Finance Agency will now compel lenders to give data on customers’ language preferences, resulting in fair lending litigation.

According to the regulator, lenders for traditional mortgages will be expected to provide information about borrowers’ language preferences and housing counseling beginning in March 2023. The disclosures, according to Sandra Thompson, acting head of the FHFA, will help the industry “more completely adapt to the nation’s growing diversity.”

In a statement by Rohit Chopra, director of the Consumer Financial Protection Bureau, he informed lenders that collecting the data “does not violate the Equal Credit Opportunity Act” or its related regulations. However, it is unclear what the federal government will do with the data once it has been collected. The disclosure rules could be used as evidence in future fair lending lawsuits. In the past, regulators have relied on lenders’ lack of linguistic access to pursue charges of loan discrimination.

One potential snag is that the data will be held by the FHFA rather than bank regulators, the Department of Justice, or the Consumer Financial Protection Bureau. The Federal Housing Finance Agency (FHFA) does not regulate lenders directly. The CFPB currently receives race and ethnicity data through its Home Mortgage Disclosure Act rule. In addition, the CFPB often undertakes statistical studies of US Census Bureau and HMDA data in preparing for redlining lawsuits.

While lenders must comply with the reporting requirements to do business with Fannie Mae and Freddie Mac, borrowers have the option of not responding to the preferred language inquiry. To read more on this, click here.

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