CFPB Fines Real Estate Entities Over RESPA Violations

Manatt, Phelps & Phillips, LLP

Manatt, Phelps & Phillips, LLP

Targeting violations of the Real Estate Settlement Procedures Act (RESPA) by a mortgage lender, two real estate brokers, and a mortgage servicer, the Consumer Financial Protection Bureau (CFPB) announced almost $4 million in penalties and consumer relief.

What happened

According to the Bureau, a California-based mortgage lender with nearly 100 branches across the country engaged in a variety of schemes from at least 2011 through 2016 to pay kickbacks for referrals of mortgage business in violation of RESPA. One tactic: agreements with real estate brokers that served as a cover to deliver payments based on the number of referrals, the CFPB alleged.

The lending company had various types of agreements in place with more than 100 brokers and tracked the number of referrals to adjust payments up or down accordingly, the CFPB claimed. More informal, co-marketing arrangements also operated as vehicles to make payments for referrals, the agency added.

Another kickback payment method—known as "writing in"—required paid brokers to have their clients prequalify with the lender, the Bureau alleged, even consumers that had already prequalified with another lender. The lender also paid kickbacks to a mortgage servicer, the CFPB alleged, where the servicer worked to persuade eligible consumers to refinance for Home Affordable Refinance Program mortgages. The servicer and the lender split the proceeds of the sale of each loan, the Bureau said.

To settle the charges, the mortgage lender will pay a civil penalty of $3.5 million. The company is also prohibited from future RESPA violations, may not pay for referrals and cannot enter into any agreements with settlement service providers to endorse the use of their services.

Two of the real estate brokers that received payments from the lender also reached a deal with the Bureau. The California and Oregon brokers both had marketing services agreements, lead agreements and desk-license agreements that were, in whole or in part, vehicles to obtain illegal payments for referrals, the CFPB alleged. To settle the allegations, the companies promised not to enter into any agreements with settlement service providers to endorse the use of their services and will pay a total of $85,000 in civil penalties, with one realtor chipping in an additional $145,000 in disgorgement.

As for the mortgage servicer, the Connecticut-based company took half the proceeds earned by the lender for the sale of each mortgage loan that originated as a result of its referral, the CFPB alleged, and accepted the return of the mortgage servicing rights of that borrower's new mortgage loan. The servicer also used "trigger leads" from one of the major consumer reporting agencies to target its marketing to consumers seeking to refinance, a use of credit reports prohibited by the Fair Credit Reporting Act (FCRA), the Bureau said.

The consent order with the servicer requires the company to provide $265,000 in redress and halt future violations of both RESPA and the FCRA.

Why it matters

The action "sends a clear message that it is illegal to make or accept payments for mortgage referrals," CFPB Director Richard Cordray said in a statement. "We will hold both sides of these improper arrangements accountable for breaking the law, which skews the real estate market to the disadvantage of consumers and honest businesses." The Bureau has taken aggressive action in both interpreting the anti-kickback provisions of RESPA and then enforcing RESPA's kickback prohibition on prior occasions, including a February 2015 action as well as the basis for the ongoing litigation against PHH Corporation.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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