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DS News June 2022

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71 71 INVESTMENT GOVERNMENT PROPERTY PRESERVATION CFPB WARNS MORTGAGE INDUSTRY ABOUT LEGAL RESPONSIBILITIES IN DISCLOSURE Federal anti-discrimination laws in banking are supposed to protect consumers from credit companies from denying an application for credit or taking other adverse actions without just cause or a clear explanation on why the action was taken. Companies have long used advanced computational methods as part of their credit decision making process, but as technology evolves, so do these models. Some creditors are now making decisions based on a model called "black box" models. is model produces outputs that may be unknown to the model's users, including its own creators. As such, adverse action notices that meet Equal Credit Opportunity Act (ECOA) requirements from these models may not be possible. In order to remind the public of these requirements, the CFPB published a Consumer Financial Protection Circular, including those responsible for enforcing federal consumer financial protection law, of creditors' adverse action notice requirements under the ECOA. "Companies are not absolved of their legal responsibilities when they let a black-box model make lending decisions," said Rohit Chopra, Director of the CFPB. "e law gives every applicant the right to a specific explanation if their application for credit was denied, and that right is not diminished simply because a company uses a complex algorithm that it doesn't understand." According to the CFPB, data harvesting on Americans has become voluminous and ubiquitous, giving firms the ability to know highly detailed information about their customers before they ever interact with them. Many firms across the economy rely on these detailed datasets to power their algorithmic decision-making, which is sometimes marketed as "artificial intelligence." e information gleaned from data analytics has a broad range of commercial uses by financial firms, including for targeted advertising and in credit decision-making. e circular highlights two major points: » Federal consumer financial protection laws and adverse action requirements should be enforced regardless of the technology used by creditors. For example, ECOA does not permit creditors to use technology that prevents them from providing specific and accurate reasons for adverse actions. Creditors' use of complex algorithms should not limit enforcement of ECOA or other federal consumer financial protection laws. » Creditors cannot justify noncompliance with ECOA based on the mere fact that the technology they use to evaluate credit applications is too complicated, too opaque in its decision-making, or too new. Creditors who use complex algorithms— including artificial intelligence or machine learning technologies—to engage in credit decisions must still provide a notice that discloses the specific, principal reasons for taking adverse actions. ere is no exception for violating the law because a creditor is using technology that has not been adequately designed, tested, or understood. "Whistleblowers play a central role in uncovering information about companies using technologies, like black-box models, in ways that violate ECOA and other federal consumer financial protection laws," the CFPB concluded. "Having clear, actionable information is critical for the CFPB and other consumer protection enforcers. e CFPB encourages tech workers to provide the agency with information, and they can visit the CFPB's Whistleblower Program webpage to learn more." Journal that get demolished." Among other things, the plan will immediately begin supporting production and availability of manufactured housing, scaling Up ADUs and piloting ADU and home renovation financing tools, and boost rural single-family construction through the USDA. "MBA commends the Biden administration for announcing steps to alleviate the acute shortage of single-family and multifamily housing for prospective homebuyers and renters," said Mortgage Bankers Association President and CEO Bob Broeksmit, CMB. "Eliminating the regulatory barriers to new construction, including manufactured housing, in underserved markets; expanding affordable financing for multifamily development and rehab projects; and a commitment to more private and public sector partnerships will help address the housing supply and affordability challenges that continue to burden families. "As the administration focuses on ways to improve the financing of multifamily projects, MBA strongly encourages HUD to focus on the issues that continue to lead to significant lending pipeline delays in its MAP program, which is a primary financing option for producing more affordable rental housing," Broeksmit continued. "MBA will examine all aspects of the plan in greater detail and remains committed to working with the administration, Congress, and industry stakeholders on safe and responsible policies that increase homeownership opportunities and affordable rental housing options across America, especially for minority and low- and moderate- income households." National Association of Realtors President Leslie Rouda Smith also issued a statement regarding President Joe Biden's plan to address the housing supply shortage: "Last year, a landmark research report commissioned by NAR recognized a shortage of 5.5 million homes in the U.S.—a gap so large it would take more than a decade to dig out of, even with accelerated new construction. "With rising mortgage rates and a persistent shortage of affordable homes, the dream of homeownership is limited for many middle-income, first-time, and first-generation homebuyers. Urgent action is needed to tackle our nation's housing supply crisis. NAR welcomes the administration's work on this effort and encourages policymakers to look at

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