The Consumer Financial Protection Bureau (CFPB) has fined two mortgage lenders and two real estate brokerages for what the federal agency says was an “illegal kickback scheme” in which one of the lenders allegedly paid for mortgage business referrals, in violation of federal law.

  • The Consumer Financial Protection Bureau has ordered two brokerages and two lenders to pay nearly $4 million total for alleged violations of the Real Estate Settlement Procedures Act (RESPA).
  • RESPA prohibits both paying for and receiving payment for mortgage business referrals.
  • Re/Max Gold Coast allegedly required buyers to prequalify with Prospect in order for their offers to be considered by home sellers -- even if they had already prequalified with another lender.
  • KW Mid-Willamette allegedly gave its agents bonuses for referring consumers to Prospect.
  • The CFPB indicated that more than 100 real estate brokers had agreements with Prospect to obtain illegal payments for referrals. Whether the agency plans to fine any other brokers is unknown.

The Consumer Financial Protection Bureau (CFPB) has fined two real estate brokerages and two mortgage lenders and for what the federal agency says was an “illegal kickback scheme” in which one of the lenders allegedly paid for mortgage business referrals, in violation of federal law.

In four separate consent orders (links below), the CFPB leveled fines totaling nearly $4 million:

  • Corvallis, Oregon-based Keller Williams Mid-Willamette, which has about 130 agents, must pay $145,000 in ill-gotten gains to the U.S. Treasury and a $35,000 civil money penalty to the bureau.
  • Ventura, California-based Re/Max Gold Coast, which has about 190 agents, must pay a civil money penalty of $50,000 to the bureau.
  • Sherman Oaks, California-based Prospect Mortgage must pay a civil money penalty of $3.5 million to the bureau.
  • Meridien, Connecticut-based mortgage servicer and lender Planet Home Lending LLC must pay $265,000 in redress to affected consumers.

A “consent order” means that the parties have contractually agreed to the terms of the order, but all four of the companies fined said they consented to the order “without admitting or denying any of the findings of fact or conclusions of law.”

The federal Real Estate Settlement Procedures Act (RESPA) prohibits anyone, including real estate agents and brokers, from making or accepting payments, kickbacks or any items of value for mortgage referrals. This case is the latest in which CFPB has demonstrated an increasing willingness to go after those accepting such payments, which will likely impact more real estate brokers in the future.

CFPB’s allegations

According to the CFPB, from at least 2011 through 2016, Prospect Mortgage used “a variety of schemes” to pay kickbacks for referrals of mortgage business in violation of RESPA, including marketing services agreements (MSAs) that were framed as payments for advertising or promotional services but actually served to “disguise” payments for referrals.

Prospect Mortgage

Specifically, the agency alleged Prospect had agreements with more than 100 real estate brokers, including Re/Max Gold Coast and Keller Williams Mid-Willamette, whose primary purpose was 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,” the agency said.

Re/Max Gold Coast

The agency also alleged Prospect had paid brokers, including Re/Max Gold Coast, to require consumers to prequalify with Prospect even if they had already prequalified with another lender.

Brokers allegedly had their listing agents “write in” into the agent remarks section of the multiple listing service (which is not accessible to the public) a requirement that buyer’s agent clients must prequalify with Prospect in order for their offers to be considered by home sellers.

According to the consent order against Re/Max Gold Coast, the brokerage received more than $500,000 in payments under lead generation and desk licensing agreements from Prospect from July 1, 2011 to the present.

Keller Williams Mid-Willamette

Some brokers, including KW Mid-Willamette, allegedly paid their agents a cash or cash-equivalent bonus when the agents referred consumers to Prospect.

According to the Keller Williams Mid-Willamette consent order, the brokerage received more than $140,000 in payments under lead generation, marketing services, and desk licensing agreements from Prospect from July 1, 2011 to the present.

KW Mid-Willamette allegedly gave its agents more than $30,000 in cash-equivalent fees “under and an agreement or understanding” that the agents would refer mortgage origination business to Prospect.

“Closely related matters were addressed in an October 2016 decision by the Federal District Court in Washington, D.C., in which opposition to CFPB prevailed,” said Sue Long, broker of Keller Williams Mid-Willamette, in an emailed statement, apparently referring to a case involving captive reinsurance at PHH Mortgage.

CFPB filed an appeal to that decision. Keller Williams Realty Mid-Willamette will have no further comment while that matter is pending before the U.S. Court of Appeals.”

Planet Home Lending

Prospect also had an agreement with Planet Home Lending under which Planet worked to identify and persuade eligible consumers to refinance with Prospect for their Home Affordable Refinance Program (HARP) 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,” the agency said.

‘Today’s action sends a clear message’

Richard Cordray

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

“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.”

Section 8(a) of the federal Real Estate Settlement Procedures Act (RESPA) prohibits making payments or giving kickbacks to anyone, including real estate brokers and agents, in return for referring consumers to particular real estate settlement service providers, the CFPB said in its consent order against Prospect.

This is in part “to prevent exploitation of consumers’ reliance on their brokers and agents” for recommendations “for various services, such as mortgage lending, title insurance or home inspectors,” the agency said.

“But despite RESPA’s prohibition, [Prospect] paid many brokers, as well as a mortgage servicer, for mortgage origination referrals” involving “thousands of consumers,” the CFPB added.

According to the order, Prospect, which has nearly 100 branches nationwide, is expected to take steps to voluntarily surrender all of its mortgage lending licenses and wind down its lending operations within 90 days of the date of the order.

“Under Prospect Mortgage’s new leadership team, the company has rebuilt its legal, regulatory and compliance practices,” Prospect Mortgage told Inman in an emailed statement.

“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. In closing, the company has neither confirmed or denied the facts or charges alleged by the CFPB.”

In November, national mortgage lender HomeBridge announced it had signed a definitive agreement to purchase Prospect Mortgage’s operating assets.

The consent orders for the three other fined companies did not indicate they would cease operations.

Are other brokers next?

But a big question remains for other real estate brokerages that had agreements with Prospect: Will the CFPB come after them next?

The agency indicated that the two brokerages fined in this litigation were “among more than 100 brokers who had marketing services agreements, lead agreements, and desk-license agreements with Prospect, which were, in whole or in part, vehicles to obtain illegal payments for referrals.”

The CFPB did not respond to a request for comment asking whether the agency would fine other real estate brokerages in connection with this case.

In an emailed statement, Pete Crowe, senior vice president of communications and marketing at national franchisor Re/Max, said:

“Each office is independently owned and operated so we’re unable to comment on specifics regarding this order. Our franchisees are dedicated to maintaining the integrity of our industry and protecting and serving their buyers and sellers.”

Planet Home Lending, Re/Max Gold and franchisor Keller Williams did not respond to requests for comment.

Email Andrea V. Brambila.

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