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CFPB orders Prospect Mortgage to pay $3.5 million for improper mortgage referrals

Regulator calls alleged activity "kickback" scheme

[Update Feb 1: Story now includes a statement from Prospect Mortgage]

The Consumer Financial Protection Bureau today ordered Prospect Mortgage, a major mortgage lender, to pay a $3.5 million fine for improper mortgage referrals, in what the regulator calls an alleged “kickback” scheme.

The lender paid illegal kickbacks for mortgage business referrals. But Prospect Mortgage isn’t the only one being fined. The CFPB also dealt out penalties to two real estate brokers and a mortgage servicer who took kickbacks from Prospect. These three will pay a combined total of $495,000 in consumer relief, repayment of ill-gotten gains and penalties.

“Today’s action sends a clear message that it is illegal to make or accept payments for mortgage referrals,” CFPB Director Richard Cordray said. “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.”

Here are three reasons the CFPB said it is fining Prospect Mortgage:

Paid for referrals through agreements: 

Prospect maintained various agreements with over 100 real estate brokers, including ReMax Gold Coast and Keller Williams Mid-Willamette, which served primarily as vehicles to deliver payments for referrals of mortgage business. Prospect tracked the number of referrals made by each broker and adjusted the amounts paid accordingly. Prospect also had other, more informal, co-marketing arrangements that operated as vehicles to make payments for referrals. 

Paid brokers to require consumers – even those who had already prequalified with another lender – to prequalify with Prospect: 

One particular method Prospect used to obtain referrals under their lead agreements was to have brokers engage in a practice of “writing in” Prospect into their real estate listings. “Writing in” meant that brokers and their agents required anyone seeking to purchase a listed property to obtain prequalification with Prospect, even consumers who had prequalified for a mortgage with another lender.

Split fees with a mortgage servicer to obtain consumer referrals: 

Prospect and Planet Home Lending had an agreement under which Planet worked to identify and persuade eligible consumers to refinance with Prospect for their Home Affordable Refinance Program mortgages. Prospect compensated Planet for the referrals by splitting the proceeds of the sale of such loans evenly with Planet. Prospect also sent the resulting mortgage servicing rights back to Planet.

Prospect is prohibited from future violations of the Real Estate Settlement Procedures Act, will not pay for referrals and will not enter into any agreements with settlement service providers to endorse the use of their services, according to the CFPB.

In addition to Prospect’s fine, ReMax Gold Coast will pay $50,000 in civil money penalties and Keller Williams Mid-Willamette will pay $145,000 in disgorgement and $35,000 in penalties. Under the consent order filed against Planet Home Lending, the company will directly pay harmed consumers a total of $265,000 in redress.

“Under Prospect Mortgage’s new leadership team, the company has rebuilt its legal, regulatory and compliance practices,” a company spokesman told HousingWire. “Today’s settlement with the CFPB regarding alleged origination practices initiated under the prior management team, closes an important chapter in the company’s history.”

“We appreciate our engagement with the CFPB’s Supervision division over the past two years as we completed this transformation,” the spokesman continued. “In closing, the company has neither confirmed or denied the facts or charges alleged by the CFPB.”

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