CFPB Ruling Seen as Big Win for Mortgage Lenders

By Chris Bruce

Mortgage lenders and real estate settlement service providers could be big winners from an important Jan. 31 court ruling upholding the Consumer Financial Protection Bureau’s single-director leadership structure.

A divided U.S. Court of Appeals for the District of Columbia Circuit reversed a panel ruling from October 2016 that said the Dodd-Frank Act vested too much power in the hands of the CFPB director. However, the decision also effectively restores a long-standing interpretation of the Real Estate Settlement Procedures Act that was upended by a 2015 enforcement decision by then-CFPB Director Richard Cordray.

That’s being called a significant win for mortgage lenders and others in the real estate settlement services arena. “In some ways for the industry, that’s the most important aspect of the decision,” Quyen Truong, a partner with Stroock & Stroock & Lavan LLP and former CFPB enforcement official, told Bloomberg Law.

The case grew out of a 2015 CFPB enforcement ruling by Cordray in connection with reinsurance arrangements between PHH and Atrium Insurance Corp., a PHH subsidiary later re-established as Atrium Reinsurance Corp. Among other points, Cordray ordered PHH to give up $109 million in what he said were ill-gotten gains due to alleged RESPA violations. The Jan. 31 ruling unwinds that order, as well.

Mortgage reinsurance payments between Atrium and PHH violated RESPA’s anti-kickback provisions because they didn’t reflect services that were performed, Cordray said. He rejected PHH’s claim that RESPA had long been understood and applied to provide an exemption for such arrangements. The company pointed to a 1997 letter by federal housing regulators in support of its case, but to no avail.

PHH challenged Cordray’s ruling before a D.C. Circuit panel, which in October 2016 threw out Cordray’s interpretation of RESPA. However, that ruling was vacated when the full D.C. Circuit took the appeal in the case, leaving the RESPA question in limbo.

Back in Place

The D.C. Circuit’s Jan. 31 ruling puts the panel ruling — and, in real terms, prior practice — on RESPA back in place, at least for now. “The panel opinion, insofar as it related to the interpretation of RESPA and its application to PHH and Atrium in this case, is accordingly reinstated as the decision of the three-judge panel on those questions,” the D.C. Circuit said Jan. 31.

The ruling is a big plus for the mortgage industry, according to Benjamin Olson, a former CFPB official and now a partner in Washington with Buckley Sandler LLP. “This means that for mortgage lenders that have been moving away from fee-for-service arrangements with referral partners, those lenders are now going to face increased pressure to get back into that market,” Olson told Bloomberg Law.

The National Association of Realtors also praised the ruling. “We’re hopeful this much-needed clarity will address any and all uncertainty moving forward for real estate professionals who have entered into marketing service agreements with settlement and other service providers,” NAR President Elizabeth Mendenhall said in a statement.

The decision means a host of business arrangements will be viewed in a new light, said Phil Schulman, a partner with Mayer Brown LLP in Washington. “For those settlement service providers that were sitting on the sideline waiting for the en banc ruling, this decision may cause real estate brokers, lenders, and title companies to take another look at marketing agreements, advertising agreements, and desk rentals,” he said.

The case is PHH Corp. v. Consumer Financial Protection Bureau , D.C. Cir., No. 15-01177, 1/31/18 .

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To contact the editor responsible for this story: Michael Ferullo at

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