CFPB Fines Prospect Mortgage Over Alleged Kickbacks

By Jeff Bater

A California mortgage lender agreed to pay $3.5 million to the Consumer Financial Protection Bureau over allegations it paid kickbacks for referrals.

Prospect Mortgage, based in Sherman Oaks, Calif., was accused of using a variety of schemes from at least 2011 through 2016 to pay kickbacks for referrals of mortgage business in violation of the Real Estate Settlement Procedures Act (RESPA). The 1974 law is meant to eliminate kickbacks or referral fees that tend to increase unnecessarily the costs of certain settlement services.

The CFPB also took action against two real estate brokers and a mortgage servicer that allegedly took kickbacks from Prospect. The brokers, RGC Services, based in Ventura, Calif., and Willamette Legacy, based in Corvallis, Ore., and the servicer, Planet Home Lending, of Meriden, Conn., will pay a combined $495,000 in consumer relief, repayment of ill-gotten gains, and penalties, the CFPB said.

Sending a Message

“Today’s action sends a clear message that it is illegal to make or accept payments for mortgage referrals,” CFPB Director Richard Cordray said in a news release. “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 consent order said Prospect Mortgage entered into lead agreements with more than 200 different counterparties, most of which were real estate brokers. Under those agreements, Prospect paid the counterparty for each lead it received.

Prospect Mortgage is one of the largest independent retail mortgage lenders in the U.S., according to the CFPB. The company said that under a new leadership team, it has rebuilt its legal, regulatory and compliance practices.

”Today’s settlement with the CFPB regarding alleged origination practices initiated under the prior management team, closes an important chapter in the company’s history,” a company spokesman said in an e-mailed statement to Bloomberg BNA. “We appreciate our engagement with the CFPB’s supervision division over the past two years as we completed this transformation. In closing, the company has neither confirmed or denied the facts or charges alleged by the CFPB.”

Last year, a three-judge panel ruled against the CFPB in a separate action that also involved allegations of illegal kickbacks under RESPA. However, that case—which started as an enforcement action against PHH Corp. of Mount Laurel, N.J.—involved captive reinsurance arrangements.

Although all three judges ruled against the CFPB on the RESPA question, two judges said the CFPB’s leadership structure violates the U.S. Constitution. The CFPB has asked the D.C. Circuit’s full bench to review that ruling.

To contact the reporter on this story: Jeff Bater in Washington at jbater@bna.com

To contact the editor responsible for this story: Michael Ferullo at MFerullo@bna.com

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