Major lender faces $3.5 million fine over massive kickback scheme

by Ryan Smith01 Feb 2017
A major mortgage lender has been slapped with a $3.5 million fine for allegedly participating in an illegal kickback scheme. Two real estate brokers and a mortgage servicer that allegedly accepted kickbacks from the lender have also been fined.

The Consumer Financial Protection Bureau announced Tuesday that Prospect Mortgage would pay a $3.5 million civil penalty in the case, while the real estate brokers and the servicer would pay a combined $495,000 in “consumer relief, repayment of ill-gotten gains, and penalties.”

California—based Prospect Mortgage is one of the largest independent retail mortgage lenders in the country, with almost 100 branches nationwide. According to the CFPB, between 2011 and 2016 the lender used “a variety of schemes” to pay kickbacks for referrals of mortgage business – a violation of the Real Estate Procedures Settlement Act (RESPA). For example, the CFPB claimed that Prospect established marketing services agreements with companies under the guise of payment for advertising or promotional services. However, the agreements were actually used to disguise kickback payments, the CFPB alleged. Prospect allegedly maintained “improper arrangements” with more than 100 real estate brokers.

In addition to setting up questionable marketing services agreements, Prospect allegedly paid brokers to require consumers – even those who had already prequalified with another lender – to prequalify with Prospect. The lender also allegedly split fees mortgage servicer Planet Home Lending to obtain referrals.

In addition to paying the $3.5 million penalty, Prospect will be prohibited from paying for referrals or entering into any agreements with settlement service providers to endorse the use of their services.

Planet Home Lending, meanwhile, will “directly pay harmed consumers” a total of $265,000. The company is also prohibited from paying for or accepting payment for referrals, and from entering into any agreements with settlement services providers to endorse the use of their services.

The CFPB also took action against real estate brokers ReMax Gold Coast and Keller Williams Mid-Willamette for allegedly having improper arrangements with Prospect. ReMax Gold Coast will pay $50,000 in civil penalties, while Keller Williams Mid-Willamette will pay $145,000 in disgorgement and $35,000 in penalties.

“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.”


Related stories:
Citi subsidiaries must pay $28.8 million for giving ‘runaround’ to borrowers
CFPB slaps another credit reporting agency with fine

COMMENTS

  • by | 2/1/2017 11:58:38 AM

    I'm just curious when the real estate companies and their "in-house" lenders will ever get scrutinized

  • by | 2/1/2017 12:04:15 PM

    I'd like to know when they will do the same scrutiny with Construction companies. How can they require a Pre Approved buyer qualify with their preferred Lender?? No Steering there!

  • by JD | 2/1/2017 12:06:52 PM

    Agree. Baird and Warner agents get nasty emails form their "in-house" lender if their clients do not go through them first. The emails typically say things like "why did we not get to look at this deal?"

    Baird and Warner agents get awards for using their in-house lender and the office managers push the agents to only refer Key Mortgage - their in-house lender

    @Properties and Dreamtown has been getting paid by Guaranteed Rate for years!

Poll

Is TILA-RESPA a good or bad thing long term?