Marx Sterbcow of the Sterbcow Law Group will speak on "The Essentials IV -- CFPB Consent Orders for Compliance Officers" at the Mortgage Bankers Association Regulatory Compliance Conference at the Grand Hyatt Hotel in Washington, D.C. on Sunday, September 18, 2016 from 3:30 PM to 4:45 PM. The session will be a comprehensive overview of key Consumer Financial Protection Bureau consent orders and it will provide tips on how to apply the findings to your mortgage business.
The Consumer Financial Protection Bureau "CFPB" announced they entered into a consent order on May 26, 2016 with a now former Wells Fargo loan officer employee, David Eghbali, for engaging in a purported illegal mortgage fee-shifting scheme. The Consent Order is "In the Matter of: David Eghbali" File No. 2016-CFPB-0011. The CFPB stated that David Eghbali referred a large number of loan closings to New Millennium Escrow Inc., who in return shifted its fees from some customers to others at Eghbali's request. Eghbali benefitted from this relationship because he could manipulate loan costs which helped him increase the number of loans he closed which in turn increased his loan originator commission.
The CFPB has the authority to take action against institutions or individuals engaging in unfair, deceptive, or abusive acts or practices "UDAAP" or that otherwise violate federal consumer financial laws. The CFPB found that this scheme violated the Real Estate Settlement Procedures Act "RESPA" Section 8(a), which prohibits giving a “fee, kickback, or thing of value” in exchange for a referral of business related to a real estate settlement service.
The CFPB stated from around November 2013 to February 2015, Eghbali had an arrangement with New Millennium Escrow which allowed him to manipulate the fees his customers would pay for escrow services. In California, escrow companies provides services such as document preparation and holding and transferring payments related to mortgage loan refinance transactions. Consumers who obtain a mortgage in California do not ordinarily have a preferred escrow company and often rely on their loan officers to recommend one.
In the CFPB's press release they said the investigation discovered that, based on the direction of Eghbali, New Millennium would reduce its fees for certain customers and make up for its loss by adding fees to loans for other customers. The arrangement helped Eghbali generate more business because it allowed him to offer "No-Cost" loans to price conscious consumers who might have gone to a competitor bank or lender to find a cheaper loan. Eghbali directed these fee reductions where borrowers' closing costs, including escrow fees, otherwise would have exceeded the credit available to them under Wells Fargo's pricing guidelines, given their chosen interest rates. Under the arrangement Eghbali referred nearly all of his more than 100 clients to New Millennium. New Millennium raised and lowered its fees on numerous occasions according to the Consent Order.
Eghbali received a top-producing loan officer award, the "President's Cup", from Wells Fargo from 2011 to 2014 which according to the CFPB meant that he also received a bonus on each loan he closed.
Eghbali received fees, kickbacks, or things of value under agreements or understandings that business incident to or a part of a real-estate-settlement service involving federally related mortgage loans would be referred to New Millennium, in violation of RESPA, 12 U.S.C. § 2607(a); 12 CFR § 1024.14(b).
Under the terms of the consent order David Eghbali is banned from the mortgage industry for a period of One (1) year and he must pay a civil penalty of $85,000.00 in installments to the CFPB's Civil Penalty Fund.
The CFPB did not disclose how they became aware of this matter or if it was self-reported by Wells Fargo but it does dispel any notion that the CFPB only targets large companies for activities they believe violate RESPA and/or UDAAP.
New Millennium Escrow, Inc. who would appear to be the giver under the definition of RESPA was not penalized under this Consent Order by the CFPB and it is unknown if they will also face their own Consent Order or Enforcement Action by the CFPB in conjunction with this matter.
CFPB Files Lawsuit Against Co-Owners of Online Lead Generation Company For Lax Reverse Vendor Management Oversight Practices
On April 21, 2016 the Consumer Financial Protection Bureau (CFPB) filed suit against two owners of a company who resold loan applications containing sensitive personal data to lenders and data brokers without assessing the sources of those leads or purchasers they sold the lead data too. The CFPB filed suit against the owners of D and B Marketing, Inc. d/b/a T3Leads, Dmitry Fomichev and Davit Gasparyn. T3Leads is a lead aggregation company based in Burbank, California that purchased and sold payday and installment loan applications without properly vetting buyers and sellers.
T3Leads and two other parties were previously sued by the CFPB in December of 2015 in a separate lawsuit but this suit targets the individual co-founders of T3Leads.
CFPB Richard Cordray stated that "T3Leads steered consumers towards bad deals with lenders it didn't vet and with no regard for how consumer's information would be used. This is a reminder to the middlemen who buy and sell consumer loan applications: if you engage in this type of conduct, you risk the consequences of harming people."
Lead aggregators buy consumer information (also called Leads) from Lead Generators, which are websites that market payday and installment loans. These Leads often contain personal information such as a consumer's name, telephone number, home and email addresses, references, and employer information.
The CFPB claims jurisdiction over T3Leads and the two co-founders for violating Unfair, Deceptive, or Abusive Acts or Practices [UDAAP].
In these lawsuits the CFPB alleges that T3Leads did not vet or monitor its lead buyers, exploited consumer's lack of understanding of the risks, costs, and conditions of the loans being applied for, and put consumer information at risk of being trafficked for illegal purposes. T3Leads purportedly sold consumer information to Indian Tribes and lenders based in foreign countries who according to the CFPB "often skirt state laws or deny the jurisdiction of U.S. courts."
Of particular importance is the CFPB's seemingly new tool it is using for UDAAP enforcement called "Reverse Vendor Management Oversight". T3Leads is accused of failing to vet or monitor its upstream lead generator vendors whom it was purchasing its leads from. The monitoring of upstream vendors is a concept that could have particularly ground shaking effects on every industry the CFPB regulates including the entire residential lending industry.
The Bureau alleged that T3Leads:
"Ignored false or misleading statements about lenders obtaining consumer applications: Consumers who applied for loans through T3Leads’ lead generators had no control over who received their application and had to trust T3Leads’ selection of lenders in its network. But those lead generators suggested that its lenders met certain standards, and often falsely claimed to match consumers with lenders that “follow the rules” or offer “reasonable” terms."
Failed to vet or monitor purchasers: T3Leads failed to vet purchasers before adding them to its network or selling them leads, and did not require lenders to provide information about whether they complied with state laws.
Steered consumers toward unfavorable loans: T3Leads’ process often steered consumers to lenders offering less favorable loan terms than otherwise available. In particular, consumers were likely to be connected to lenders that ignore state usury limits or claim immunity from state regulation and jurisdiction. These entities often charge higher interest rates than lenders that do comply with state laws, and they often paid the highest prices for leads from T3Leads."
RESPA Conference: Marx Sterbcow and Charles Cain to present at the 2016 National Settlement Services Summit in Charlotte, North Carolina
Marx Sterbcow, the Managing Attorney, of the Sterbcow Law Group, and Charles Cain, Vice President, Agency, WFG National Title Insurance Co. will present at the 2016 National Settlement Services Summit [NS3] at the Le Meridien & Sheraton Hotel in Charlotte, North Carolina on Wednesday, June 8, 2016.
The session titled "Ethics: UDAAP, Reverse Vendor Oversight and Legal Malpractice" will discuss how Title agents and attorneys are expected to adhere to the highest ethical standards, and how Dodd Frank’s ban on Unfair, Deceptive or Abusive Acts or Practices (UDAAP) have given the CFPB broad authority to root out questionable activities. Learn how UDAAP is requiring agents to gear up when it comes to ethical conduct, particularly in the area of RESPA compliance. The presentation will explain how UDAAP could make vendor management liability and oversight a two-way street through a new enforcement tactic known as "Reverse Vendor Management Oversight". Reverse Vendor Management Oversight could challenge the bounds of legal malpractice by requiring title agents, lawyers, and attorney notaries to be on the lookout for vendor compliance issues with their clients. Speakers will share real-world examples, and attendees will walk away with actionable tips for remaining UDAAP compliant in an increasingly active RESPA and UDAAP enforcement environment.
October Research Corporation has generously offered a Discount Code to attend NS3 for all friends and clients of the Sterbcow Law Group. To receive your Discount Code please contact the Sterbcow Law Group and we will send you the special discounted rate code to attend NS3.
Marx Sterbcow, Managing Attorney, of the Sterbcow Law Group will present in two sessions at the 2016 Real Estate Service Providers Council [RESPRO] Annual Conference on Tuesday, April 19, 2016 at the Ritz Carlton Hotel in New Orleans.
The first session " Uncertainties to Website Endorsements and Intra Company Organizational Endorsements" is from 11:00 AM - 12:00 AM in the LaSalle Ballroom. Mr. Sterbcow is co-presenting with Stan Gordon with Gordon & Associates and Francis (Trip) Riley with Saul Ewing. "There are a variety of views as to whether the inclusion of a service provider on a website is a permissible endorsement or a referral in violation of RESPA. Can it be a referral when there is no direct consumer communication? Is the website in the nature of an electronic directory even if it has a link to the service provider? The CFPB’s action have caused uncertainty and an over action in this area. The same uncertainties exist in an integrated group of companies driving an endorsement of a service provider down to its management and sales agents. Today many would say that is a referral."
The second session "Who's Your Vendor? Vendor Management for Affiliated Business Title Agencies" is from 4:15 PM - 5:15 PM in the LaSalle Ballroom. Mr. Sterbcow will co-present with Charles Cain. "Notaries, searchers and abstractors, marketing companies, lead generation portals, recording companies, even couriers are sources of liability for you and your lender. How do the real estate broker and agent fit into the issue? Find out what the issues are and how you can respond when your lender customer asks what you do to address fourth-party vendor management liability. During this session, two noted attorneys will discuss real processes in order to provide answers and not just pose more questions. This advanced-level affiliated business arrangement vendor management compliance session is designed to provide specific examples based on our latest experiences across the country."
RESPA CONSUMER CLASS ACTION LAWSUIT FILED AGAINST REALOGY, PHH CORP, TRG, NRT, AND OTHERS SURROUNDING THEIR AFFILIATED BUSINESS ARRANGEMENTS
A consumer class action RESPA lawsuit was filed on November 25, 2015 by Timothy L. Strader Sr., against PHH Corporation, REALOGY Holdings Corp., PHH Mortgage Corporation, PHH Home Loans LLC, RMR Financial LLC, NE Moves Mortgage LLC, PHH Broker Partner Corporation, REALOGY GROUP LLC, REALOGY Intermediate Holdings, Title Resources Group LLC, West Coast Escrow Company, TRG Services Escrow Inc., NRT LLC, REALOGY Services Group LLC, and REALOGY Services Venture Partner LLC in United States District Court for the Central District of California. (Case No. 8:15-CV-1973).
The allegations in this consumer class action lawsuit largely surround issues involving violations of Section 8(a) and Section 8(c)(4) of the Real Estate Settlement Procedures Act of 1974, as amended, 12 U.S.C. §§ 2601 et seq ("RESPA"), and its implementing regulations, 12 C.F.R. §§ 1024.1 et seq. ("Regulation X"). RESPA – and, in particular, the prohibition on referral fees and kickbacks in 12 U.S.C. § 2607 – was explicitly designed to protect consumers “from unnecessarily high settlement charges caused by certain abusive practices,” such as those described in this Complaint. 12 U.S.C. § 2601(a). As such, 12 U.S.C. § 2607(a) prohibits the giving or accepting of any “fee,” “kickback,” or “thing of value” in exchange for business incident to or part of a “settlement service” (as those terms are defined in RESPA and Regulation X) involving a federally related mortgage loan.
The complaints states the Defendants violated RESPA and distorted the market for title insurance and other settlement services in at least two different manners:
First, PHH and Realogy created an affiliated business arrangement called PHH Home Loans, which the Plaintiffs contend was a sham joint venture carefully engineered to facilitate and disguise the payment of unlawful referral fees and kickbacks in exchange for the referral of title insurance and other settlement services to Realogy's subsidiary, Title Resource Group ("TRG"). The allegations further state that prior to October 21, 2015, PHH was bound under a Strategic Relationship Agreement to refer all title insurance and settlement services to TRG. The consumers referred by PHH Home Loans paid approximately $1650 to TRG for title insurance and other settlement services. If this allegation is accurate it would violate Section 8(c)(4) under RESPA* which prohibits the "Required Use" of an affiliate if the consumer paid for those services.
Pursuant to the Strategic Relationship Agreement, PHH Home Loans is the exclusively recommended mortgage lender for Realogy's real estate brokerage network, which is operated by NRT, LLC (which operates such brands as Coldwell Banker, Sotheby's International Realty, ZipRealty, The Corcoran Group, and Citi Habitats.
The Plaintiffs also state that PHH receives a right of first refusal for the purchase of the mortgage servicing rights for PHH Home Loans originated mortgages, which permit PHH Home Loans to sell the servicing rights to PHH "on terms no less favorable" than those that could be obtained from an independent third party and that PHH owns a disproportionate share of the servicing rights for those mortgages relative to PHH's overall market share of residential mortgage servicing. The complaints states that the details of this relationship have not been publicly disclosed to consumers.
Second, the Plaintiffs allege that under a related Private Label Solutions ("PLS") model--in which PHH manages all aspects of the mortgage process for various large banking institutions that PHH directs the PLS Partners to refer title insurance and other settlement services to TRG without disclosing to consumers the existence of PHH's affiliation with TRG, nor the fact that PHH was required to cause the PLS Partners to refer title insurance and other settlement services to TRG under the terms of the Strategic Relationship Agreement.
The complaint further states that the undisclosed mandatory referral arrangement existed for over 10 years until October 21, 2015, when PHH and Realogy amended the Strategic Relationship Agreement to delete the mandatory referral provision. PHH filed their latest Form 10-Q with the SEC on November 5, 2015 and based on the exhibits it did not include the mandatory referral provision language. The Plaintiffs contend the reason that PHH deleted this provision is due to the Consumer Financial Protection Bureau v. PHH Corporation enforcement action where the CFPB fined PHH $109 million dollars for its relationship with Atrium Reinsurance Corporation, an affiliate of PHH.
This is a RESPA class action case worth monitoring given the allegations, parties involved, and the CFPB's related case against Atrium now pending in Federal District Court. Judge Fernando M. Olguin is presiding over the case.
If you have any questions about how your company's affiliated businesses are structured please contact us to set up a consultation.
Marx Sterbcow, managing attorney with the Sterbcow Law Group, and James Milano, member with Weiner Brodsky Kider PC will speak on RESPA News's webinar series on the topic of Lead Generation Compliance. The webinar is scheduled for Tuesday, November 10, 2015 from 2:20-3:15 PM EST. The Editor of RESPA News, Justine Jones will moderate the webinar.
We will train participants on the regulations governing the real estate lead generation industry and what increased attention the CFPB, Federal Trade Commission, and other agencies mean for your business practices. The webinar will focus on how the CFPB expanded its authority with the use of UDAAP, the potential ramifications of Regulation Z's Loan Officer Compensation Rule, the dangers of co-marketing with other settlement service providers, and how to carefully vet lead generation companies.
Marx Sterbcow, managing attorney with the Sterbcow Law Group, will moderate a RESPRO Marketing Service Agreement webinar with Phil Schulman, partner at K&L Gates on October 22, 2015. The RESPA webinar titled "To Agree to Market or Not Agree to Market" will discuss how MSAs have been around for 20 years and in June of 2010 HUD's RESPA Division issued an interpretative rule. Now however, after the CFPB's RESPA consent order in Lighthouse Title, the PHH decision, and the recent CFPB Bulletin 2015-05, Marketing Service Agreements a/k/a MSAs have become a controversial and hot topic. Learn what you can do and what you can't do based on the latest CFPB guidance.
Marx Sterbcow, managing attorney, of the Sterbcow Law Group, has been invited to speak at the Louisiana Bankers Association 2015 Bank Counsel Conference on the topic of "Who's Your Vendor? Secondary Market Compliance & Title Agent Vendor Management." The session will provide insight into how banks should be managing their vendors and what requirements they should be requiring their title agent vendors to have in place. The presentation will also focus on managing the third party vendor management risks in a Post-TRID world and the expectations the secondary market will be playing in this new changing regulatory landscape.
The 2015 Bank Counsel Conference will be held on December 10-11, 2015 at the Ritz Carlton Hotel in New Orleans.
Marx Sterbcow will appear Saturday, August 29th, 2015 on the Real Estate Mortgage Shoppe with Radio Host Jo Garner from 9:00 AM to 10:00 AM CST on WREC 600 AM on iHeart Radio. The topic is "Ask The Expert--How the New Real Estate Lending Guidelines Affect You."
Marx Sterbcow, the managing attorney, of the Sterbcow Law Group, has been invited to speak to the Kansas Land Title Association, Mortgage Bankers Association of Greater Kansas City, and Missouri Land Title Association's Midwest TRID and Compliance Summit on September 23, 2015 in Kansas City, Kansas at Arrowhead Stadium, Tower Club East, One Arrowhead Drive, Kansas City, MO 64129.
The presentation "Vendor Management and the Secondary Market" will discuss the secondary market investors expectations for settlement agents and how you should be monitoring your third party and fourth party vendors.
Mr. Sterbcow will then moderate a Lender Panel where he will ask TRID and Vendor Management questions to Kate Steineman from Wells Fargo, Ruth Battle from Central Bank, and Amy Prater from Bank Midwest to help title agents understand what they need to do to get ready for the TILA-RESPA Integrated Disclosure implementation date on October 3, 2015.
For more information and to register please check out the Midwest TRID and Compliance Summit page.
BREAKING: 9th Circuit Court of Appeals Grants Class Certification in Edwards v. First American Corp RESPA Class Action
The United States Court of Appeals for the Ninth Circuit issued their 24 page Opinion today, August 24, 2015, in the Denise P. Edwards versus The First American Corporation; First American Title Insurance Company class action lawsuit. No. 13-55542 D.C. No. 2:07-cv-03796-SJO-FFM.
The Edwards v. First American class action lawsuit was originally filed on June 12, 2007 and has spent over 8 years bouncing from federal court to federal court.
The 9th Circuit Court of Appeals affirmed in part and vacated in part the United States District Court for the Central District of California's order denying class certification in a case where the Plaintiffs alleged that First American Title engaged in a national scheme of paying title agencies things of value in exchange for the title agencies' agreement to refer future title insurance business to First American in violation of the Real Estate Settlement Procedures Act "RESPA".
The Court of Appeals Panel held that in determining the proprietary of class certification, the district court erred in holding that the RESPA Safe Harbor in 12 U.S.C. §2607(c)(2) requires Edwards to prove that First American overpaid for its ownership interests in each of the title agencies.
The Opinion written by Judge Gould explained that the ownership goods purchased by First American are equity shares--not goods, services or facilities within the meaning of RESPA §2607(c)(2). The Panel also held that the district court abused its discretion in denying class certification on the grounds that 12 U.S.C. §2697(a) requires an individual inquiry, on each transaction, to determine whether First American's purchase prices of the ownership interests exceeded their fair market value.
The Court also held that cases involving illegal kickbacks in violation of RESPA §2607(a) are not necessarily unfit for class adjudication. The 9th Circuit Court of Appeals wrote that Edwards need only prove the existence of an exchange involving a referral agreement, which does not require inquiry into individual facts across all 38 captive title agencies, and that the proposed class members also share common questions of fact.
The Panel concluded that the alleged common scheme, if true, presents a significant aspect of First American's transactions that warrant class adjudication: Whether First American paid a thing of value to get its agreement for exclusive referrals in violation of RESPA. The Federal Appeals Court vacated the District Court's denial of class certification in part to these transactions that involved the common scheme presented to First American's Board of Directors.
The Panel of Judges also disagreed with the District Court's holding that influences by third parties constitute individual issues that render RESPA class adjudication improper. The panel wrote that other sources of referral do not defeat the predominate common questions of fact, i.e. whether the title agencies have contractual obligations to refer their customers to First American.
The Court also held that the District Court erred in determining that individual inquiries are required in connection with twelve title agencies that are affiliated business arrangements and in connection with certain agencies that are majority-owned by First American.
First American however did score one small victory when the 9th Circuit Court of Appeals agreed with the District Court that First American's transactions with newly formed title agencies do not raise common issues sufficient for class action adjudication, and affirmed the District Court's denial of certification as to the newly formed title agencies.