Recent Senate hearings have sparked renewed debate over a national mortgage database that will hold information about millions of mortgage, credit card and auto loans, loan terms, borrowers’ credit profiles and financial information.
The project — the largest database of its kind — was announced in November as a joint endeavor of the fledgling watchdog Consumer Financial Protection Bureau and the Federal Housing Finance Agency.
At a hearing of the Senate Committee on Banking, Housing & Urban Affairs on April 23, CFPB director Richard Cordray defended collection of the data as necessary to monitor the mortgage market, while critics aired their concerns about privacy and how the information might be used.
Cordray said that the data will consist of the same consumer information banks purchase, but unlike the banks’ data, all identifying information will be removed.
“The notion that the regulators wouldn’t keep up with [the banks] in trying to do our job of overseeing them I think would be quite misguided,” Cordray said.
Sen. Mike Johanns, R-Neb., called the idea of a federal database “downright creepy.”
An early version of the database is scheduled to launch this year.
In its efforts to keep up with the Big Data trend of acquiring and storing massive amounts of information, the FHFA entered into a $11.1 million contract with Experian to help build the database.
What hasn’t been spelled out is how the information will be protected.
David Jacobs, consumer privacy counsel for the Electronic Privacy Information Center (EPIC) in Washington, said that as long as the database follows “fair information practices,” he doesn’t see a problem.
Those practices include not collecting consumer information without consent, providing transparency and access to individual users, and protecting the database against hacking, he said.
The database may raise greater privacy concerns because it includes financial data, which typically includes sensitive information.
“Anytime you’re working with personally identifiable information, you have the potential for a data breach that exposes that [information],” said Paul Stephens, director of policy and advocacy at the Privacy Rights Clearinghouse in San Diego.
But Stephens said if steps are taken to make the information anonymous, such that it cannot be used to identify individual borrowers, then it would be less troubling.
If the database uses aggregate data to track trends, rather than information about individuals, that would diminish privacy concerns, Jacobs added.
Whose eyes will be on it?
Lawyers representing banks say they’re worried about who will see the data and how it will be used.
They’re afraid the data could be used by regulators and plaintiffs’ lawyers to go after banks and lenders for unfair lending practices.
“There’s a real concern the data will be used against lenders in a way that can’t be foreseen,” said Laurence E. Platt, a partner at K&L Gates in Washington.
Platt said he assumes the information will be shared with state agencies, such as attorneys general and state banking overseers.
“Is the data going to be used as prima facie evidence of X allegation of unlawful or unfair lending? We don’t know,” he said.
The mortgage banking industry is also concerned about increased litigation if non-regulatory people get their hands on the information.
“What access will borrowers and plaintiffs’ lawyers have, and will there be certain trends identified by the plaintiffs’ bar that lead to an increase in litigation against segments of the industry?” asked Michael S. Waldron, a partner in Ballard Spahr’s mortgage banking group in Washington.
Platt suggested that once information floods into government hands, it will flow out of them just as quickly under public disclosure laws.
“There’s a lot of data out there and everybody would love the data,” he said. “It’s Big Data, Big Government, Big Brother.”