CFPB fines mortgage lender for kickbacks

The Consumer Financial Protection Bureau fined Prospect Mortgage $3.5 million for improper mortgage referrals, in what the regulator calls a “kickback” scheme.

The Consumer Financial Protection Bureau last week fined Prospect Mortgage $3.5 million for improper mortgage referrals, in what the regulator calls a “kickback” scheme.

The CFPB also dealt out penalties to two real estate brokers and a mortgage servicer who accepted the kickbacks from Prospect. These three will pay a combined total of $495,000 in consumer relief, repayment of ill-gotten gains and penalties. The consent order can be found here.

“Today’s action sends a clear message that it is illegal to make or accept payments for mortgage referrals,” said CFPB Director Richard Cordray. “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 CFPB alleges that Prospect violated the Real Estate Settlement Procedures Act, which was enacted in 1974 as a response to abuses in the real estate settlement process. A primary purpose of the law is to eliminate kickbacks or referral fees that tend to increase unnecessarily the costs of certain settlement services. The law covers any service provided in connection with a real estate settlement, such as title insurance, appraisals, inspections and loan origination. The bureau cites three separate illegal practices.

First, Prospect maintained various illicit agreements with more than 100 real estate brokers, including the two named in the consent order, which served primarily as vehicles to deliver payments for referrals of mortgage business. Prospect tracked the number of referrals made by each broker and adjusted the amounts paid accordingly. Prospect also had other, more informal, co-marketing arrangements that operated as tools to make payments for referrals.

Also, Prospect allegedly engaged in the practice of “writing in,” which means that brokers and their agents entered Prospect’s name on the mortgage paperwork before consumers began the paperwork. This required anyone seeking to purchase a listed property to obtain prequalification with Prospect, even consumers who had prequalified for a mortgage with another lender.

Finally, the consent order states that Prospect compensated mortgage servicers for their referrals by splitting the proceeds of the sale of such loans. Prospect also sent the resulting mortgage servicing rights back to the servicer. Such fee-splitting is expressly illegal under RESPA.

While Prospect neither admitted nor denied the charges, the company did note that most of the alleged violations occurred in 2011-2012 and that the company has since “rebuilt its legal, regulatory and compliance practices,” a company spokesman said.

Fredrikson & Byron Law