In the span of a week, the CFPB has made it clear that it will not tolerate compensation to loan originators based upon interest rates. These are the second and third cases resolved by the CFPB regarding loan originator compensation in the past six months and are based upon Regulation Z’s Loan Originator Compensation (“LOC”) Rules.
On June 4th, the CFPB and RPM Mortgage entered into a proposed consent order which requires RPM to pay $18 million dollars in monetary relief and a $1 million civil money penalty. It additionally requires RPM’s CEO to pay an additional $1 million civil money penalty. The complaint alleged generally that RPM instituted a compensation plan which incentivized loan originators to steer consumers to higher rate mortgage loans. Specifically, the Complaint alleged that RPM established employee expense accounts into which RPM deposited profits from an originator’s closed loans. The Loan officers could receive bonuses from the accounts or use the accounts to offset interest rate or provide other incentives to consumers to avoid losing transactions. The CFPB contended that by doing so, the officers were able to close and earn commissions on accounts they would have otherwise lost to competitors. All of the actions of RPM occurred prior to January 1, 2014 and therefore fell under the prior version of the LOC Rule.
On June 5th, the CFPB entered into a consent order with Guarantee Mortgage Corporation to resolve violations of the LOC Rules. The consent order requires Guarantee, which is no longer in business, to pay $228,000.00 to the CFPB’s Civil Penalty Fund. The consent order finds that Guarantee paid monthly fees to marketing services entities (“MSEs”) which were associated with Guarantee’s branch offices and set the fees based upon the profitability of the associated branch. The owners of the MSEs drew the monthly fees as additional compensation. The Consent Order asserts that the MSE owners included in some cases loan originators. Because of the accounting methods used by Guarantee, the fees paid to the MSEs included income from loans originated by their owners based on interest rates charged on the originated loans. The CFPB therefore determined that in certain cases compensation was received based upon the terms of loans they originated in violation of the LOC Rule.