Under Section 8 of the Real Estate Settlement procedures Act (RESPA), it is illegal for anyone to give or receive a fee, kickback or anything of value in exchange for referrals of settlement service business to a particular person or organization relating to a federal mortgage loan. Violations of this section of RESPA are subject to civil and criminal penalties which could be assessed in the form of a fine, imprisonment or both.
On January 22, 2015, the Consumer Finance Protection Bureau (CFPB) and the Maryland Attorney General sent a strong warning to the mortgage industry and its affiliates that violations of RESPA would not be taken lightly. The CFPB and the Maryland Attorney General entered into a consent order with two major banks for violations of Section 8 of RESPA following extensive investigations. The CFPB assessed fines of $35.7 million against the two banks for illegally trading referrals for cash and marketing services.
The CFPB alleged that more than 100 loan officers across 21 bank branches primarily located in Maryland and Virginia sent thousands of homebuyers who were financing their mortgages through the two banks to a now-defunct title company to perform the homebuyers’ real estate closing services. In exchange, the title company provided the loan officers with cash, consumer information and marketing services aimed at helping them drum up more loan business and allowing the loan officers to focus on their own illegal financial gain rather than treating customers fairly.
If approved, the proposed consent orders filed in the United States District Court for Maryland will require $24 million in civil penalties from one bank, $600,000 in penalties from the second bank and $11.1 million in redress to consumers whose loans were affected by the scheme. The CFPB filed an administrative consent order against both banks prohibiting future violations. Monetary penalties were also assessed against a former bank employee and his wife for their direct involvement in the scheme. A third lender that was involved in the scheme came clean early on in the CFPB’s investigation and fired the loan officers involved. Because that lender self-remedied the problem during the investigation, the CFPB did not assess any penalties against it.
The CFPB’s message is loud and clear: illegal referral schemes in the real estate industry resulting in unfair treatment will be penalized.