PHH’s battle with the Consumer Financial Protection Bureau is about to head to the courtroom in what is one of the first cases of a business successfully challenging the bureau. But whether PHH will win its battle against the big guy is hard to say.

The mortgage lender fought back against the leadership at the CFPB, saying the bureau overstepped its authority when it imposed a penalty on PHH.

Both parties will meet before a panel of judges on April 12.

In advance of the hearing, the U.S. Court of Appeals for D.C. sent both parties a list of questions that they should be prepared to brief on, according to a note from Compass Point Research & Trading

The questions, to Compass Point, lean in favor of PHH. "While a consideration of the CFPB’s structure was already expected, we view the court’s questions regarding similarly structured agencies and potential remedies if the structure is found to be unconstitutional as a signal that the court could look favorably on PHH’s arguments," the note said. 

Here are the questions that Compass Point said both parties were give: 

  • What independent agencies now or historically have been headed by a single person? For this purpose, consider an independent agency as an agency whose head is not removable at will but is removable only for cause?
  • If an independent agency headed by a single person violates Article II as interpreted in Free Enterprise Fund v. PCAOB, 561 U.S. 477 (2010), what would the appropriate remedy be?
    • Would the appropriate remedy be to sever the tenure and for-cause provisions of this statute, see 12 U.S.C. 5491(c)? Cf. Free Enterprise Fund, 561 U.S. at 508-10. Or is there a more appropriate remedy
    • How would the remedy affect the legality of the Director's action in this case?

Compass Point still gives PHH a $19 price target and a buy rating. 

Back in August, A D.C. Circuit Court issued a stay against a $109.2 million fine levied against PHH by CFPB Director Richard Cordray.

Cordray’s decision in June held that PHH violated the Real Estate Settlement Procedures Act every time it accepted a kickback payment on or before July 21, 2008 – going far beyond Administrative Law Judge Cameron Elliot’s ruling, which had limited PHH’s violations to kickbacks that were connected with loans that closed on or after July 21, 2008 — a mere $6.4 million penalty.

Cordray issued a final order in June that requires PHH to disgorge $109.2 million – all the reinsurance premiums it received on or before July 21, 2008.

This didn’t go over well, leading to an update in PHH’s 10-K filed on Feb. 26, saying:

The company continues to believe that it has complied with RESPA and other laws applicable to its former mortgage reinsurance activities, and continues to vigorously defend against the CFPB’s allegations and the director’s final order through the appellate process. A hearing on the merits of the appeal is currently scheduled before the Court of Appeals on April 12, 2016. There can be no assurances as to the final outcome of any such appeal.

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