Industry NewsMortgage

Lawsuit alleges mortgage lender and its owner steered consumers into costlier mortgages

Proposed order seeks $19 million in redress and civil penalties for alleged illegal loan officer compensation scheme

Continuing its streak of enforcement actions involving mortgage lenders, the Consumer Financial Protection Bureau (CFPB) announced today that it has filed a complaint in federal court against California mortgage lender RPM Mortgage Inc., and its CEO/owner, Erwin Robert Hirt, for allegedly steering consumers into mortgages with higher interest rates.

The lawsuit, filed in the U.S. District Court for the Northern District of California, alleges that in 2011, RPM instituted a compensation plan that gave loan officers financial incentives to steer consumers into higher-rate mortgage loans.

The loan officers earned compensation that was derived, in part, from the interest of the loans they closed, the CFPB alleges.

The bureau further alleges that the company attempted to hide the scheme by filtering the interest-based compensation through employee expense accounts that the loan originators used to offset interest rate reductions or to give credits to certain customers to avoid losing the transactions to competitors.

Pointing a finger directly at Hirt, the CFPB alleges he was responsible for managing the design and implementation of the compensation plan.

The company’s and Hirt’s actions violated the Loan Originator Compensation Rule of the Truth in Lending Act, which prohibits loan officer compensation based on the terms of a transaction, the CFPB alleges in its complaint.

6 ways empowered agents embrace disruption to drive success
Using technology to generate leads and win listings READ MORE

According to the CFPB, prior to the Loan Originator Compensation Rule taking effect in 2011, RPM paid its loan officers a “commission split,” or a predetermined percentage of the rebate or profit generated on a closed loan. The bureau also alleges that this conduct violated the Consumer Financial Protection Act.

We are putting an end to RPM’s unlawful practices and holding Robert Hirt personally responsible for his involvement in them." - CFPB Director Richard Cordray

According to the CFPB’s complaint, RPM paid 511 bonuses to its loan originators from their individual employee expense accounts. The bureau is seeking $18 million in redress to consumers and a $1 million civil penalty from RPM, and an additional $1 million civil penalty from Hirt.

“We are putting an end to RPM’s unlawful practices and holding Robert Hirt personally responsible for his involvement in them,” said CFPB Director Richard Cordray in a statement.

RPM and Hirt have not yet responded to the lawsuit.

Founded in 1986, RPM Mortgage is headquartered in Alamo, California, and has more than 60 other branches in six states. The lender ranked 20th on Mortgage Executive Magazine’s Top 100 Mortgage Companies in America in 2014.

Email Amy Swinderman.