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From Banking and Finance Law Daily, February 25, 2014

Mortgage lender self-reports to CFPB on fee-splitting violations

By Katalina M. Bianco, J.D.

The Consumer Financial Protection Bureau has entered a consent order against a Connecticut mortgage lender, 1st Alliance Lending, LLC (First Alliance), for violating the Real Estate Settlement Procedures Act and Regulation X by illegally splitting real estate settlement fees.

The bureau said that First Alliance self-reported the violations to the CFPB, consistent with the bureau’s Responsible Business Conduct bulletin, admitted liability, and provided information related to the conduct of others that the bureau said has assisted in other enforcement investigations, all of which the bureau took into account when issuing the consent order.

“These types of illegal payments can harm consumers by driving up the costs of mortgage settlements,” CFPB Director Richard Cordray said. “The Bureau will use its enforcement authority to ensure that these types of practices are halted. We will, however, also continue to take into account the self-reporting and cooperation of companies in determining how to resolve such matters.”

Background. First Alliance provides loss-mitigation financing to distressed borrowers. First Alliance obtains troubled mortgages from mortgage servicers and contacts the borrowers, offering new loans with reduced principal amounts under federally related mortgage programs, according to the bureau. In 2010, First Alliance began using a hedge fund to finance its loans. The CFPB alleges that First Alliance split revenues and fees with affiliates of the hedge fund.

In 2011, First Alliance secured less costly financing and ended its arrangement with the hedge fund and its affiliates, the bureau said. Although the hedge fund and its affiliates no longer financed First Alliance’s mortgages, First Alliance continued to split origination and loss-mitigation fees with them. The complaint against First Alliance charges that the hedge-fund affiliates received payments from 83 First Alliance loans made between August 2011 and April 2012.

Admission of liability. First Alliance contacted the CFPB in 2013, stating that the company believed it had violated RESPA by paying the unearned fees to the hedge fund. RESPA's Section 8(b) prohibits a person from paying or receiving a fee that has not been earned in connection with a real-estate settlement. The bureau notes that the company cooperated with the resulting investigation, a fact that the CFPB took into account when entering the consent order.

Consent order. First Alliance agreed to the issuance of a consent order for RESPA Section 8 violations, and the bureau entered a Stipulation and Consent to the Issuance of a Consent Order. First Alliance stipulated to the CFPB’s jurisdiction over the matter and to the findings of fact and conclusions of law.

The consent order prohibits First Alliance from committing further violations of RESPA Section 8 or any other federal consumer financial law. First Alliance is required to pay a civil money penalty of $83,000 to the CFPB within 10 days of entry of the order. The penalty will be deposited in the bureau’s Civil Penalty Fund.

Companies: 1st Alliance Lending, LLC.

MainStory: TopStory CFPB ConnecticutNews CrimesOffenses EnforcementActions Loans Mortgages RESPA

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