This week, the Consumer Financial Protection Bureau announced a consent order with an individual loan originator. The order, found here, is drawing scrutiny from the financial industry both for its novel targeting of an individual rather than an organization, and for its expansive interpretation of the Real Estate Settlement Procedures Act (RESPA) .
The loan originator, David Eghbali, worked from 2013 to 2015 out of a Wells Fargo office. He is accused of an illegal mortgage fee-shifting scheme. The CFPB found that Eghbali worked a deal with an escrow company to shift its fees from some customers to others to facilitate no-cost refinances. The CFPB asserts this is illegal.
The CFPB cited RESPA in its consent order. Section 8 prohibits referrals where a “thing of value” is exchanged. “No person shall give and no person shall accept any fee, kickback or thing of value pursuant to any agreement or understanding” that is “part of a real estate settlement service involving a federally related mortgage loan.” The consent order claims that Eghbali received a discount from the escrow company that was “of value” to him since it would “ultimately increase the number of loans he closed, increasing his commissions.”
The CFPB’s interpretation of RESPA would seem to suggest that any negotiation between an originator and an escrow company, title company or other provider is suspect. The right to contract is implicated if these entities are not free to vary their rates for originators that they prefer to deal with. Indeed, if any discrepancy in rates is suspicious, then the book of business of every loan orginator in America is subject to CFPB scrutiny. The CFPB is making no claim that any loan customer could have gotten a better rate than they did from Eghbali, nor that any cash went into Eghbali’s pocket. The “thing of value” is the increased business Eghbali hoped to earn.
Curiously, the CFPB went after Eghbaldi but not the escrow company he negotiated with, and not Wells Fargo. Eghbaldi is defiant. “I am deeply shocked that the CFPB chose to pursue a regulatory action against me on a novel and frankly bizarre theory—that obtaining low or zero fee escrow services for certain of my clients somehow delivered an improper ‘benefit’ to me at the expense of my clients,” he said. “I was bullied into entering the consent order because the CFPB left me no other reasonable choice. The extraordinary cost of fighting these allegations in prolonged litigation against such a powerful federal agency was not possible for an individual in my circumstance.”