“No one wants to hear, “Uh, Mr. Johnson, there’s a Richard Cordray holding for you on line 2.” (Unless your name isn’t Johnson, right?) The CFPB ordered PHH to pay a $109 million penalty related to captive reinsurance…
…At the end of 1Q, the company had announced that the CFPB had recommended a $6.4 million penalty, which was being appealed, but the company had recorded a reserve of that size. In November 2014, the company received a recommended decision from the administrative law judge for a $6.4 million payment to the CFPB. Both the company and the CFPB appealed. In the action, Richard Cordray overruled the judge and increased the penalty by basing the penalty on a larger cohort of loans that the administrative law judge had used. According to the CFPB release, this action can be appealed, although the $109 million would need to be put into escrow while the appeal proceeds. It is unknown yet whether any potential settlement would be tax deductible. Jody Shenn with Bloomberg writes that, “Cordray’s decision holds that PHH breached Real Estate Settlement Procedures Act every time it accepted kickback payment on or after July 21, 2008, going beyond prior ruling, which had limited PHH’s violations to kickbacks that were connected with loans that closed on or after July 21, 2008. The decision marks first appeal of a bureau administrative enforcement proceeding.”
Three thousand miles away in California, RPM Mortgage has agreed to pay the Consumer Financial Protection Bureau $19 million to settle allegations that it incentivized its loan officers to steer borrowers into higher cost mortgages by “illegally” paying bonuses to them. Per the CFPB RPM paid millions of dollars in such bonuses, the CFPB said. (In 2011, regulators banned such incentive payments under the LO compensation rule.) And according to a civil complaint filed in Federal District Court for the Northern District of California, RPM allowed LOs to use expense accounts to pay for pricing incentives to close the loans. “From April 2011 through December 2013, RPM allowed loan originators to use their expense accounts to finance thousands of pricing concessions that enabled the loan officers to close and earn commissions on transactions they otherwise would have lost.” With court approval RPM will pay $18 million in “redress” to affected borrowers and a $1 million fine while CEO Rob Hirt also will pay a $1 million fine.
David H. Stevens, president & CEO of the Mortgage Bankers Association, wrote, “The Consumer Financial Protection Bureau’s latest enforcement announcement is emblematic of a larger concern — the Bureau’s pattern of issuing dense and complicated rules and then declining to provide written supervisory guidance to clarify issues of common concern in the industry. The rule at play here – the Loan Originator Compensation rule – was originally issued by the Fed in 2010 and then taken over by the CFPB in the wake of Dodd Frank. The rule has long been a subject of industry confusion because of its broad and prescriptive reach into the smallest details of lender compensation plans and the lack of clear guidance on how to comply.
“In fact, MBA repeatedly asked for clarification from the Fed, and later the CFPB, on some of the very same issues that are the subject of this complaint. Eventually, in 2014, the CFPB amended the rule and provided some additional guidance. However, the Bureau appears now to be applying those amendments retroactively. It should be no surprise, therefore, that this ‘regulate by enforcement’ approach has created tight credit conditions, as fearful lenders avoid even prudent risk-taking activities. The repetition of this misguided approach across a variety of new mortgage-related rules is increasing the costs and restricting the availability of credit for qualified borrowers. It is time for the Bureau to end this approach and begin providing meaningful guidance where it is needed and sought by stakeholders. The CFPB should reserve aggressive enforcement actions and punitive monetary penalties for egregious violations that result in proven consumer harm.””, Excerpt from June 2015 Mortgage Industry Newsletter