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Mortgage company must pay $13m for illegal bonus scheme

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Mortgage Professional America | 08 Nov 2013, 07:00 AM Agree 0
The CFPB has announced a proposed consent order in its action against Castle & Cooke for allegedly steering consumers into more expensive mortgages
  • John O | | 08 Nov 2013, 07:22 AM Agree 0
    The law is simple: 1. fixed compensation on all mortgages 2. Bonuses cannot be based on profit
  • Nice Guys they are... | | 08 Nov 2013, 07:29 AM Agree 0
    The CFPB kept $4 million for their troubles...let's see that's 7.69%...good thing they are not subject to a 3% cap or they would be paying a fine. They are funded by the FED, so is that their bonus money?
  • Bayview Mortgage Inc. | | 08 Nov 2013, 07:33 AM Agree 0
    Oh brother. Were they table funding? or brokering. until they start cancelling licenses. Will anyone take notice.
  • Mike S. | | 08 Nov 2013, 09:04 AM Agree 0
    What about the LO's that were paid the bonuses? How is it they're not being held responsible? At a minimum, there should be a complaint against each of their licenses posted on their NMLS record. So much for weeding out the "bad guys".
  • Dan | | 08 Nov 2013, 09:18 AM Agree 0
    when will the CFPB look at builders steering buyers to their in-house lender offering incentives to the buyer if they do so but will not if the buyer uses a lender of their choosing. Smells fishy ..... real fishy!!!
  • Bob | | 08 Nov 2013, 09:24 AM Agree 0
    Well at least we have one profitable company that's not sending jobs overseas. Uhm, do you know where I can get an application.
  • Mario | | 08 Nov 2013, 09:33 AM Agree 0
    The CFPB is missing the point. They need to pull these los and management licenses and remove them from the industry. Until this occurs we will continue to see this behavior, and a small 10M dollar fine isn't going to change that in a trillion dollar industry, which see this as the cost of doing business.
  • Mark Dallas TX | | 08 Nov 2013, 09:34 AM Agree 0
    A bonus for being profitable?
  • GoBigDog | | 08 Nov 2013, 09:57 AM Agree 0
    I'm glad that the CFPB doesn't have any control over Realtors. Paying bonus commissions (or paying higher commissions) for selling agents is a common way to ensure that a listing gets shown.
  • Michael | | 08 Nov 2013, 10:06 AM Agree 0
    How is that any different than any other industry? If the client doesn't shop and just accepts what is given to them then why is that a slam on the LO? Why isn't the same said about car salesman-electronics, plumbers, etc...As far as profitablility goes-the shop's profit is greatly affected by who you sell your mortgages to. BofA (before CW) for example, paid way better than a lot of other places on specifically 5 year I/O ARM's. My compensation as a broker was .5% higher than it was as a US Bank employee-Personally, I passed the savings on to the client-but if I hadn't and I created profit for the company why is that wrong? Now, people that were gouging clients with mega points shame on them but, again, where's the self responsibility of shopping for the best rate/product? So tired of the industry being slammed for everything- yes, there was some sh*t going on in the industry but this??? why is this wrong? Now, that said, I lost a deal (or 5) to an area builder that would give a buyer $26k in upgrades-free 4 wheelers, TV's, a car, etc IF and only if they used THEIR mortgage company-zero if I did the mortgages-why is that OK-if that isn't steering IDK what is! Now IDK anything about this cpompany, maybe they were charging so much that with the bonuses they were over the legal limits-which in that case is crazy bcuz the legal limits were very high....and when did this bonusing take place-recently or 5 years ago? Anyway.... As a consumer shop what you are getting and if you like the LO and his fee's are on par, then deal with them. There's more to life than the lowest price-or State Farm for example, wouldn't have any clients!
  • Bob | | 08 Nov 2013, 10:43 AM Agree 0
    Dan, there is nothing illegal/unethical about a builder offering incentives to buyers to use their affiliated mortgage company.
  • Creative Business Finance | | 08 Nov 2013, 10:44 AM Agree 0
    Funny how the CFPB is attacking mortgage companies but leaving Realtors alone. NAMB/NMLA is weak in comparison to the Realtors lobbyists. Another reason I left residential and only do commercial now.
  • Think... | | 08 Nov 2013, 11:11 AM Agree 0
    The CFPB has made a traditional commissioned sales job illegal. Obviously this is a far greater fundamental change in our policy than many of the respondents are aware of. Please think it through. Besides this, using compensation to determine if a mortgage is 'good for the consumer' is ridiculous.
  • Jim in CT | | 08 Nov 2013, 11:29 AM Agree 0
    Article is preciously short of detail. What exactly were they doing? "Steering" is a nice insidious headline word but doesn't really describe what was really going on.
  • mattdand | | 08 Nov 2013, 11:44 AM Agree 0
    Bob, how can you say there is nothing unethical with builders offering incentives to use their lender? That's the definition of "steering" and that's one of the items the CFPB is to be enforcing.
  • Bob | | 08 Nov 2013, 11:52 AM Agree 0
    It would be "steering" if they REQUIRED the use of their lender. Offering an incentive for use of their affiliate is completely legit. Under RESPA they could even pay their own employee a referral fee for referring to their affiliate. In addition, rebates given to one's own customer are not considered "kickbacks" under RESPA. In other words, if the builder chooses to offer anyone that uses a particular bank a discount that is RESPA compliant as long as the builder is not receiving anything of value from the lender for the referral.
  • Mark Dallas TX | | 08 Nov 2013, 12:02 PM Agree 0
    Bob the problem is when the builder requires the client to use the builders mortgage company or they will not get the upgrades. Then the client applies and closes the mortgage with higher fee's & a much higher rate for a 5k upgrade. How much was that 5k upgrade worth in the end if you pay 30 years on the mortgage with the .5% rate increase?
  • mattdand | | 08 Nov 2013, 12:05 PM Agree 0
    It's considered ok only if it's a bona fide agreement. The fact is people don't know that rates and fees differ from lender to lender. Have you ever heard a builder say "Mr and Mrs homebuyer, use our lender and we will build you a deck for no cost. But just so you know, our mortgage company is going to have a higher rate and higher closing costs so we urge you to shop around to see what's best for you". If you have heard this before, you're lying.
    I suppose you're going to tell me that it's ok to use the builder's or mortgage company's title company as well?
  • Michael | | 08 Nov 2013, 01:16 PM Agree 0
    I've actually seen a builders mortgage company be pretty close-even better than some banks but still offered the big enticements? It was strange... Most are a little higher but still probably in line with traditional bank rates-closing costs were higher than a trad banks but not much....
    same with title-pretty in line fee wise-and I suppose if you can lock it all up and get all the business you aren't doing bad-esp if your company is into capturing clients and not jsut a one and done approach.... who knows what the reasoning is....
  • EJ | | 08 Nov 2013, 01:20 PM Agree 0
    Hey Bob if the borrower obtains better financing with another company then why does the builder pull their incentives? According to the CFPB the consumer should be treated fairly. If they obtain better financing elsewhere then shouldn’t the builder lower their purchase price or match the financing? The problem is the financing elsewhere is always better and the savings is more than the incentive being offered (especially over the mortgage term). So how is the builder really offering an incentive? IMO the builder is misleading the buyer. The buyer thinks they’re receiving an incentive when they are actually paying for the incentive by using the builders higher finance company.
  • Lee in CA | | 08 Nov 2013, 01:26 PM Agree 0
    This should frighten all of us... whether lender or broker. You cannot bonus your top performers because it can be construed by an auditor to be something else. My concern is that this could even be applied to offering a higher split to one MLO than another. Where does it end? More importantly, how do employers know what they can actually do to retain their best performers?
  • Bob | | 08 Nov 2013, 01:35 PM Agree 0
    The only requirement is providing an "Affiliated Business Disclosure". The terms don't have to be good. Many lenders have an affiliated title company and give the borrower an incentive to use it. I'm not sure what you mean by "bona fide" but the only real requirement is that there can't be any thing of value exchanged for the referral other than the return on ownership in the affiliated entity. While referring someone consistently to an entity with higher costs wouldn't violate RESPA it would, of course, leave the referrer open to civil litigation under a host of other theories. Of course, if the benefit they were getting from the builder was greater than the additional cost from the affiliate they would have no case.
  • Michael | | 08 Nov 2013, 01:43 PM Agree 0
    Exactly Lee- EJ, the builder that I ran into a lot was in the normal market range-so I personally didn't see the big benefit of the incentives-except for capturing the whole transaction.
  • jCDAAS | | 08 Nov 2013, 02:26 PM Agree 0
    They had a " pick your compensation" program. LOs there could select a higher bp comp plan and sell higher rates, a mid range bp comp plan and sell a lower rate or a lower bp comp plan and sell the lowest rate they had. Other companies, W J Bradley, The Lending Company and others still run that same model. The larger issue here ( not that an illegal compensation plan isnt enough) isnt enough is that many of the borrower with the higher rates are less sophisticated and are being preyed on by LOs who make as much as 250 - 300 bps. The next issue will be disparate pricing with minority borrowers!
  • jCDAAS | | 08 Nov 2013, 02:27 PM Agree 0
    They had a " pick your compensation" program. LOs there could select a higher bp comp plan and sell higher rates, a mid range bp comp plan and sell a lower rate or a lower bp comp plan and sell the lowest rate they had. Other companies, W J Bradley, The Lending Company and others still run that same model. The larger issue here ( not that an illegal compensation plan isnt enough) isnt enough is that many of the borrower with the higher rates are less sophisticated and are being preyed on by LOs who make as much as 250 - 300 bps. The next issue will be disparate pricing with minority borrowers!
  • Wm Matz | | 08 Nov 2013, 03:53 PM Agree 0
    The problem will never be solved until LO's and brokers play on a level playing field. Why cannot CFPB see that?

    2 bad there was no enforcement of the YSP limits when WaMu/Countrywide et al were paying 4-5 point rebates to get originators to screw their clients.

    There are two potential problem areas with builder [I am one] incentives. First, referral fees will be illegal absent an affiliated biz arrangement. Second, the practice may well violate Federal anti-trust law, as a "tying arrangement", wherein the purchase of a more desirable product [home] is conditioned upon purchase of a less desirable product [mortgage]. The second violation is more likely to be found if mortgage terms are above market.
  • Mike T | | 08 Nov 2013, 05:03 PM Agree 0
    The whole thing is a complete joke, Does anyone really believe that the consumers are getting a better deal by eliminating competition? The only thing they have done is diminished mortgage officers and allowed the companies that they work for to increase THEIR profits at the LO's expense.
  • Vicky | | 09 Nov 2013, 07:13 AM Agree 0
    I have been in the mortgage industry for 30 yrs. I am appalled about govt intervention, telling someone how much they can make on a deal. Who the hell are they to dictate terms, when they can't implement anything correctly themselves? Go after realtors, car dealers, clothing retailers, anyone, you name it? Why mortgage workers? For the most part, brokers were not the problem in the last debacle, the big banks and investment bankers were. Anyone who has half a brain and thinks clearing knows that. Brokers can only sell what the lenders allow.
  • IrvineMichele | | 09 Nov 2013, 07:28 AM Agree 0
    Michael..I'll explain the reasoning behind why the Builder does what they do: control of the process, beginning to end. If a Builder allowed every Buyer to use their own Title or Lender etc..the margin for error (error meaning not closing ON TIME)..is greater. Builders build on warehouse lines that need to be cleared (funded) by the Buyer's mortgage proceeds and forecasts are done and profits are projected/calculated each month based on these forecasts. Typically a Title co or Lender that has the bulk of a Builder's business will not hold up a closing because of the established relationship..an outside Lender can (and will) not fund a deal on time & feel no pressure to jump thru any hoops. Bob is correct in that the Builder only needs to disclose an affiliated business arrangement exists between the Builder and the service providers. Oh..and If you "double-app" the Builder's inside Lender with your financing and an estimated Hud-1 prepared at closing reveals it's cheaper to go with yours - Bring it to your Salesperson & they will most likely match it. Unless its some super special-money deal that doesn't exist in mainstream channels!
  • Jay | | 11 Nov 2013, 07:41 AM Agree 0
    Vicky, the problem is that there are still bad lenders. When a companies, ie Wallick&Volk,The Lending Company, WJ Bradley allow some LOs too make more by taking advantage of a less sophisticated borrower that becomes a problem
  • Michael | | 11 Nov 2013, 11:52 AM Agree 0
    OK so, as I mentioned earlier, we had different banks/lenders that paid us compensation on different levels so, for example, I could make more money selling a mortgage to Bank of America then I could to, say, Wells Fargo-apples to apples comparisons-same 30 year fixed product, same costs involved...that doesn't have an effect on the customer they received the same product-and we received better pricing for using one lender versus another...that isn't what this article is about but, it should be part of the discussion. I wish the blame game would go away-everyone was a part of it-from consumers to wall street. I had some people sign a disclosure document and even turned away business because the people wanted to buy more house then they could afford-even though it was easy to qualify them. People wanted option arms even after I explained the product to them-I told them to go elsewhere (it's not a bad product but you have to know what it is and what you getting for when rates start to climb-and not just look at the monthly payment!). I only had one client that wanted it where it made sense for them. Stop the witch hunt on LO's-you are just destroying the industry-too many of the good LO's have already left the business. how about some personal responsibility? most people research a weekend getaway way more than something as important as a mortgage purchase. How many people have actually read their mortgage documents? How many people just sign and don't pay any attention-i'll tell you how many-too many!
  • LISA CLOSSON | | 15 Nov 2013, 08:54 AM Agree 0
    The only problem I see is that the Govenment has thier hands in something they nothing about... they don't do the research before they act (Example obama care) I own a TItle Company and Once again the Hud is being re-done, Have we not confused the Consumer enough, And as far as Loan officer's You work your butts off for what you get Paid, And The builders > another story for another day, I strongly beleive in all aspects the Consumer should pick the Lender, the Builder, The Title Company and Sign a document at the end of the day on top of the other 145 Documents at the closing table , Stating" i understand everything about this mortgage and this Closing and I take full Responsiablity if I don't" Then guess what "the Consumer for once would be resposiable " Alot of Great mortgage officers and mortgage Closers have left the Business becasue of the frivolous law suites and Irresponsiable Consumers.
  • Michael | | 15 Nov 2013, 08:58 AM Agree 0
    Oh no lisa you are wrong-the consumer has no personal responsibility-everything they do it's someone else's fault and they should be sued. :/
  • mtgsmadeez | | 20 Nov 2013, 02:27 PM Agree 0
    So realtors are exempt from this? WOW!!!!
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