CFPB, FHFA to Create Groundbreaking Mortgage Database

WASHINGTON—The Consumer Financial Protection Bureau and Federal Housing Finance Agency said Thursday they are teaming up to create a first-of-its-kind mega-database of mortgages to track market trends and support policymaking research.

While multiple state and federal databases exist, there is no single database that contains all the information in one place, the agencies said. It's the first step in a broader strategy to help streamline data for research and policy analysis, and to ensure comprehensive information is more readily accessible for monitoring the market.

"If we look back on the recent crisis, one of the biggest things regulators learned was we didn't have a single source of comprehensive financial data, especially when it came to the housing market, which is one of the reasons why the Dodd-Frank Act created the Office of Financial Research," Isaac Boltansky, an analyst with Compass Point Trading and Research, said. "A better source of data about borrower characteristics will better inform policymakers in the future."

Despite the assurances about protecting borrowers' information, observers raised concerns about the high level of detail the agencies plan to collect, and the cost of such an undertaking.

"It's a little scary," said Laurence Platt, a financial services practice leader at K&L Gates. "They're collecting very detailed information about all borrowers and there is a question about how they are really going to use it."

The agencies plan to build the database by matching a nationwide sampling of credit bureau files on borrowers' mortgages and payment histories with "informational files," including data released under the Home Mortgage Disclosure Act and property valuation models "to create a comprehensive picture for each mortgage."

The database will include information spanning the entire life of a loan, from origination to servicing, and will include a variety of borrower characteristics, the agencies said in a press release.

While the database won't contain any personally identifiable information, it will include loan-level data about each mortgage, including the borrower's financial and credit profile, the loan terms, the property purchased or refinanced and the ongoing payment history of the loan.

According to a government contract notice, the FHFA awarded an $11.1 million to Experian Information Solutions to help collect and compile the data and build the database.

Platt wondered if the data will be used to impose new obligations on lenders, and whether lenders will face the burden of providing the information in the first place. If there is a need for such a database, Platt said, the private market should be handling it.

"You're going to need a team of people the bank is going to have to pay just to give the information to the government," he said. "If the information is false in any way, you'll have the [U.S. Attorney in the] Southern District of New York suing the industry."

The agencies said the database will help them monitor the health of the mortgage markets, provide new insight on consumer decision making and track new and emerging products for potential risks or problems.

It will also allow regulators to view both first and second lien mortgages for a given borrower, and understand the full impact of consumers' debt burden by including information about a borrower's other debts, such as car or student loans.

"This partnership between FHFA and CFPB will create a unique resource that benefits the government and public as we seek to answer important questions about how the housing finance market is evolving and changing," Acting FHFA Director Ed DeMarco said in the press release. "This collaborative effort is a great way to pool expertise and leverage resources for the benefit of regulators and the public."

CPFB Director Richard Cordray added, "In order to understand what is going on in the mortgage marketplace and develop appropriate consumer protections, we must have the best facts and data."

"This database will be a valuable tool for regulators and researchers and we look forward to partnering with FHFA on this important work," he said.

Observers said it wasn't surprising that the FHFA and CFPB were teaming up.

"It's a natural collaboration and it's encouraging that they are trying to work together to solve common goals," says Don Lampe, a partner with Dykema law firm.

Both Fannie and Freddie have been working for several years on the Uniform Mortgage Data Program, which seeks to incorporate electronic data delivery in the loan and appraisal process. The effort on appraisals has been marred by some setbacks and delays. http://www.americanbanker.com/issues/176_15/gse-appraisal-data-effort-1031655-1.html

There are practical applications, Boltansky said. For example, one of the challenges for the government's foreclosure prevention programs has been a lack of reliable data about who owns loans.

"One of the core reasons why Hamp has been such a failure has been a lack of clear, concise, actionable data about the housing market," he said. "That is partly why they've spent just $5.8 billion of the $50 billion that was originally apportioned."

The database, which will be updated monthly, fulfills an FHFA requirement under the Housing and Economic Recovery Act of 2008 to conduct a monthly mortgage market survey, according to the press release.

The agencies have signed an interagency agreement establishing terms for developing and funding the database, an early version of which is expected to be available in 2013. They said they are "committed to exploring ways to share database information with other federal agencies, academics and the public once the data is complete."

Platt said the effort seems to go beyond the CFPB's mandate, and suggested that such an undertaking should be open to notice and comment, as with a formal rulemaking.

"There should be a requirement to assess the regulatory burdens on lenders to provide the information, and there should be clear legal guidelines on what they can collect, how they protect, and how they can use the information," he said. "Where do you draw the line on what level of information the government needs to know to discharge the function about consumers, and who should pay the cost of providing that information?"

Section 1022 of the Dodd-Frank Act gives the bureau the authority to "gather information from time to time regarding the organization, business conduct, markets, and activities" of mortgage lenders, as part of its responsibility for monitoring the mortgage market. The database will streamline existing industry information, and would not impose any new reporting requirements on lenders, CFPB officials said.

Michael Waldron, a partner at Ballard Spahr, agreed that the industry should be given a chance to weigh in about the database's design.

"As industry lawyers we generally applaud efforts by regulators and legislatures to leverage industry data, resources and expertise to better inform their efforts and decisions, but we have concerns about how the proposed database is being sourced, analyzed and shared," Waldron said. "This undertaking should be open to additional examination and industry feedback or it runs the risk of being a further wedge between interested parties."

Joe Adler and Kate Berry contributed to this report.