The Consumer Finance Protection Bureau (CFPB) issued orders against Freedom Mortgage Corporation and Realty Connect USA Long Island for illegal kickbacks on Thursday, the first enforcement action associated with the 1974 Real Estate Settlement Procedures Act in six years.
According to the CFPB, Freedom provided real estate agents and brokers with incentives, including cash payments, paid subscription services, and catered parties in exchange for agent and broker referrals for mortgage loan offerings.
“Freedom provided kickbacks to real estate brokers and agents — including those at Realty Connect — in return for mortgage referrals, a clear violation of federal law,” Rohit Chopra, the director of the CFPB, said in a statement. “The CFPB will be vigilant in rooting out anti-competitive behavior that interferes with consumers’ ability to choose financial products and services.”
Freedom must pay $1.75 million into the CFPB’s victim relief fund, while Realty Connect was slapped with a $200,000 penalty. Both parties were also ordered to cease illegal activities immediately.
The CFPB claims that Freedom entered into marketing services agreements with more than 40 real estate brokerages, with monthly payments to brokerages totaling approximately $90,000.
Instead of using these payments to compensate the brokerages for marketing services they performed, Freedom used these marketing services agreements as a vehicle to pay for mortgage referrals, the CFPB said. Realty Connect was one of those 40 brokerages and received $6,000 per month from Freedom, but it did not perform many of the marketing tasks required under the agreement.
Other alleged violations include Freedom offering real estate brokers and agents fee-free access to industry subscription services, which included information about property reports, comparable sales, and foreclosure data. These perks were offered in exchange for a requirement for agents and brokers to agree to be paired with a Freedom loan officer. Freedom also offered free access to parties and other exclusive events.
Agents and brokers with access to subscription services made more than 1,000 mortgage referrals to Freedom since 2017, according to the CFPB. Freedom reportedly denied requests for event sponsorship from real estate brokerages that did not refer mortgage business to Freedom’s loan officers.
This is the CFPB’s first RESPA enforcement action since 2017, when the agency reached a consent order with Sherman Oaks, California-based Prospect Mortgage. The mortgage lender allegedly paid RE/MAX Gold Coast and KW Mid-Willamette monthly fees that were contingent on the number of referrals they gave Prospect Mortgage.
CFPB dinged the lender, which paid these brokerages up to $20,000 a month, a $3.5 million fine. A few months later, the CFPB fined Meridian Title Corporation $1.5 million for a purported scheme involving mortgage and title kickbacks.
Freedom Mortgage and Realty Connect didn’t respond to requests for comment.