Alert

February 1, 2017

CFPB Announces RESPA Section 8 Consent Orders with Prospect Mortgage, Real Estate Brokers, and Mortgage Servicer

Yesterday, the Consumer Financial Protection Bureau announced consent orders with Prospect Mortgage LLC ("Prospect"), two real estate brokers, and a mortgage servicer to resolve allegations of RESPA Section 8 violations in connection with lead agreements, marketing services agreements ("MSA"), desk rental agreements, and co-marketing agreements. Among other things, the Bureau alleged that:

• Prospect entered into exclusive lead agreements with numerous real estate brokers for the name and contact information of prospective buyers. The Bureau alleged that a portion of the per lead payments that Prospect made to the real estate brokers was funneled by the brokers to real estate agents that actively referred consumers to Prospect for financing.
• Prospect based its MSA payments on a counterparty's referral level and "capture rate" (i.e., how much of the broker's potential mortgage business Prospect received).
• Prospect entered into desk rental agreements with numerous real estate brokers in which Prospect analyzed the value of the rental agreement based on the number of referrals produced, rather than whether it was paying a market rate for the space. The brokers also promised to promote Prospect as their "preferred lender" and gave Prospect preferential access to their agents.
• Prospect required or encouraged its lead agreement and MSA counterparties to require prospective buyers to obtain a preapproval from Prospect. According to the Bureau, this gave Prospect an inside track on capturing the consumer's loan business, which, in turn, increased the amount of referral-based payments made to the real estate brokers under the lead agreements and MSAs.
• Prospect subsidized real estate agents' advertisements on third-party websites in return for an agent's agreement to exclusively promote Prospect in all of the agent's advertisements on the third-party website.
• Prospect allegedly pressured real estate broker counterparties to "economically coerce" consumers to use Prospect by conditioning a seller credit on the use of Prospect or imposing penalty fees for delayed closings if a lender other than Prospect was used.
• Prospect entered into an agreement with the mortgage servicer under which the servicer would identify its servicing clients who were potentially eligible for a HARP refinance and market Prospect as its preferred refinance partner. In return, the servicer received a split of the sale proceeds when Prospect sold the refinanced loan to an investor, along with the servicing rights to the refinanced loan.
• According to the Bureau, the servicer also violated the Fair Credit Reporting Act by obtaining "trigger leads" from a credit reporting agency, because the servicer was not a lender and was not in a position to make a consumer a firm offer of credit.

Under the consent orders, Prospect is required to pay a civil money penalty of $3.5 million, and the real estate brokers and servicer will pay a combined $495,000 in consumer relief, disgorgement, and penalties.