CFPB launches lender investigation; publishes new exam guidelines

The target of the Consumer Financial Protection Bureau’s first nonbank investigation is PHH Corp., one of the nation’s largest nonbank mortgage lenders.

The target of the Consumer Financial Protection Bureau’s first nonbank investigation is PHH Corp., one of the nation’s largest nonbank mortgage lenders. With new director Richard Cordray in place since Jan. 4, the CFPB can now regulate nonbank lenders.

In a filing with the Securities & Exchange Commission, PHH disclosed that it received notification from the CFPB in early January. The Bureau is investigating whether PHH influenced mortgage borrowers to use specific mortgage insurers in exchange for kickbacks.

In the filing PHH also described its financial troubles, including difficulty improving liquidity, according to the Wall Street Journal.

As recently as September 2011, PHH Corp. chief executive Jerome Selitto told a media outlet that his firm planned to increase correspondent lending. He said welcomed the news that Bank of America was eliminating its correspondent lending business because it meant less competition.

In December 2010, the company was one of nearly two dozen lenders that the Obama administration began investigating for unfairly denying U.S. government-backed mortgages to qualified loan applicants.

PHH shares lost more than 10 percent of their value in recent days after CFPB announced the investigation and Selitto resigned. Chief operating officer Glen A. Messina will take the helm.

The company’s troubles in recent months include a net loss of $148 million in the third quarter – due to a $368 million loss in its mortgage servicing business – compared with a loss of $8 million during the same period a year ago. Last month, Standard & Poor’s Ratings Service lowered some of PHH’s credit ratings over concerns that the company may not be able to pay $423 million in debt due in 2013.

New Jersey-based PHH provides mortgage services to customers of Ameriprise, Morgan Stanley Private Bank, large regional banks such as UMB and First Tennessee Bank, more than 500 community banks and 900 credit unions, and other major corporations including Century 21 and Microsoft. Its more than 5,000 employees work in Maryland, Florida and other states. According to the company’s web site, PHH Mortgage is one of the top five originators of retail residential mortgages and one of the top 10 mortgage servicers in the United States.

The CFPB has not released any information about the PHH investigation on its web site. On Jan. 11, the Bureau published its Mortgage Origination Examination Procedures. CFPB examiners will use the guide to ensure that banks and nonbanks, including lenders and brokers, comply with federal consumer financial laws. These procedures are an extension of the more general Supervisory and Examination Manual. (Read more from CFPB Journal on the examination manual.)

“The mortgage market cannot work well for consumers if the spotlight shines only on one part of it, while the rest is left in darkness. Our supervision program will illuminate the entire marketplace by making nonbanks play by the same rules as the banks,” said CFPB Director Richard Cordray in a press release.