The Consumer Financial Protection Bureau (CFPB) showed renewed interest in RESPA, as it announced its first RESPA-related consent order in at least two years against Freedom Mortgage Corp., a nonbank residential mortgage loan originator and servicer.
The bureau also issued an order against Realty Connect USA Long Island, Inc., the company it accused of accepting numerous illegal kickbacks from Freedom.
According to the consent order, Freedom provided real estate agents and brokers with incentives such as cash payments, paid subscription services, and catered parties with the understanding they would refer prospective homebuyers to Freedom for mortgage loans.
“Freedom provided kickbacks to real estate brokers and agents – including those at Realty Connect – in return for mortgage referrals, a clear violation of federal law,” CFPB Director Rohit Chopra said. “The CFPB will be vigilant in rooting out anti-competitive behavior that interferes with consumers’ ability to choose financial products and services.”
Freedom Mortgage did not immediately respond to RESPA News’ request for comment.
Freedom was ordered to cease the referral activities and pay $1.75 million to the CFPB victim relief fund. Realty Connect will pay a $200,000 penalty.
The consent order stated the bureau found Freedom entered into marketing services agreements (MSAs) with over 40 real estate brokerages, where Freedom made monthly payments totalling about $90,000 to said brokerages in exchange for the brokerages’ marketing services. The bureau alleged Freedom used these agreements to pay for referrals, rather than to compensate brokerages for marketing services that they actually performed.
As for Realty Connect, it received $6,000 per month from Freedom, but did not seem to perform many of the marketing tasks enumerated in the agreement.
“This enforcement action shows that the CFPB is once again enforcing RESPA, after a long hiatus that started when the CFPB lost its RESPA case against PHH, in which its aggressive interpretation of RESPA was rejected by the D.C. Circuit,” Richard Horn, co-managing partner at Garris Horn, said about the case.
“This case also presents important issues for mortgage companies to think about under RESPA,” Horn added. “For instance, many companies have returned to widespread use of MSAs since the PHH case. The CFPB’s rejection of the MSAs in this enforcement action as merely being a ‘mechanism to pay for mortgage referrals’ shows that companies should carefully swim in these waters.”
“Freedom gave real estate brokers and agents free access to valuable industry subscription services, which provided information concerning property reports, comparable sales, and foreclosure data,” the CFPB stated. “Freedom paid thousands of dollars per month for one of the subscription services, and Freedom provided access to over 2,000 agents for no cost.
“Freedom often required real estate agents and brokers to agree to be paired with a Freedom loan officer before Freedom would give them access to its subscription services,” it added. “Since 2017, the real estate agents who received free access to these subscription services – including agents at both Realty Connect and other brokerages – made more than 1,000 mortgage referrals to Freedom.”
In addition to the RESPA-violating marketing agreements and the subscription services, the bureau alleged Freedom hosted parties and other events for real estate agents and brokers, sometimes exclusively for those working for Realty Connect. At these events, Freedom paid for food, beverages, alcohol, and entertainment. The nonbank mortgage lender also gave free tickets to sporting events, charity galas, and other events where recipients would have otherwise needed to pay their own way. The bureau also contended Freedom denied requests for event sponsorship from real estate brokerages who did not provide them referrals.
The bureau’s actions here emphasize the need for MSAs to be carefully structured, Horn explained, and the importance of routine maintenance and internal audits on the arrangements. Its touching on the cost of food, the type of beverages (he noted the bureau appears to especially dislike alcohol), and the type of entertainment shows the CFPB is looking over all the details.