Managing Director
Lenders Compliance Group
Yet another cautionary tale out of the Consumer
Financial Protection Bureau (Bureau) about referrals. Yet again, the Bureau took action against a mortgage
lender, this time Prospect Mortgage LLC,[i] which happens to be a
major mortgage lender, for paying illegal kickbacks for mortgage business
referrals.
Not stopping there, the Bureau also took
action against two real estate brokers (RGC Services, Inc., (doing business as
ReMax Gold Coast) and Willamette Legacy, LLC, (doing business as Keller
Williams Mid-Willamette) as well as a mortgage servicer (Planet Home Lending,
LLC) that allegedly took illegal kickbacks from Prospect.
So, here we go again! Now there is yet
another Consent Order (“Order”) on a subject that has been vetted many times
already in litigation. How many such Consent Orders need to be had before there
is a strong wake-up call?
Although Prospect has consented to the
issuance of this Order by the Bureau, without admitting or denying any of the
findings of fact or conclusions of law, why does it have to come to such a
sorry state where a punitive action arises in the first place? Does anybody
really believe that the alleged RESPA violations are not foreseeable?
Under the terms of the Order, Prospect is
now stuck paying a $3.5 million civil penalty for its illegal conduct, and the
real estate brokers and mortgage servicer will pay a combined $495,000 in
consumer relief, repayment of ill-gotten gains, and penalties.
Take a look at these allegations and let’s
put a check where there is a violation of Section 8(a) of the Real Estate
Settlement Procedures Act’s (RESPA) prohibition on the payment of kickbacks in
exchange for referrals of federally related mortgage loans, 12 U.S.C. §
2607(a), and its implementing regulation, Regulation X, 12 C.F.R. part 1024, as
well as by violating RESPA, mutatis
mutandis, also then violating Section 1036 of the Consumer Financial
Protection Act (CFPA), 12 U.S.C. § 5536.
Here goes! Allegedly steering consumers
to Prospect, often with Prospect’s encouragement, by:
- requiring all consumers to apply for and obtain preapprovals with Prospect before allowing them to submit an offer on a property;
- paying their agents cash or a cash equivalent bonus each time the agent steers a consumer to Prospect;
- selectively imposing economic measures to coerce consumers into using Prospect, such as fees that would be waived if the consumer used Prospect, or credits that would be given only if the consumer used Prospect; and
- directly referring consumers to Prospect.
Prospect is not some rinky-dink mortgage
lender. It is one of the largest independent retail mortgage lenders in the
United States, with nearly 100 branches nationwide. And these referral
relationships lay out as the real estate brokers being but two of more than 100
real estate brokers with which Prospect allegedly had improper arrangements,
and Planet Home Lending, LLC is a mortgage servicer that allegedly referred
consumers to Prospect Mortgage and accepted fees in return.
Now let’s take a deeper dive into how
these referrals were structured. See if you can catch the violations! I will
break down each categorical area that can trigger RESPA violations.
Violating RESPA
by Using Lead Agreements to Pay Brokers for Referrals
Lead agreements simply are blatant
attempts to circumvent RESPA either in fact or in spirit. Actually, the
violations stemming from these types of agreements are easily identified by
Examiners. Take a look at this scenario. It is laid out here in a fact pattern.
- Lender enters into lead agreements with more than 200 different counterparties. Most of these counterparties are real estate brokers.
- Under these agreements, lender pays the counterparty for each lead it receives. A lead generally consists of a prospective buyer’s name, address, email address, and phone number. Lender then reaches out to the prospective buyer to market its loan products.
- But the counterparties who receive lender’s lead fees go well beyond simply transferring information about prospective buyers. They also actively refer prospective buyers to lender’s loan officers.
