The CFPB announced today that it has issued a Consent Order under which a Connecticut mortgage lender that self-reported potential RESPA Section 8 violations agreed to pay an $83,000 civil money penalty for such violations. 

According to the CFPB’s press release, in addition to reporting its own potential violations, the lender provided information “related to the conduct of other actors” that facilitated other enforcement investigations.  The CFPB stated that the lender’s self-reporting and cooperation were factored into the settlement, consistent with the CFPB’s June 2013 Responsible Business Conduct bulletin.  Since the settlement only requires payment of the penalty, it is possible that as a result of its “good behavior,” the lender was able to avoid having to make any payments to affected borrowers. 

The lender primarily provides loss-mitigation refinancing to distressed borrowers by offering them new loans with reduced principal amounts.  At the closing of such a new loan, the lender would typically receive an origination fee and a loss-mitigation fee from the borrower.  In 2010, the lender entered into an arrangement with a hedge fund to finance certain of its loans under which the lender gave the hedge fund a share of its revenues related to the mortgages, including a portion of the origination and loss-mitigation fees. 

In 2011, the lender began using a new warehouse facility rather than the hedge fund to finance its loans.  However, the lender continued to share revenues with the hedge fund on 83 loans.  After the lender reported to the CFPB that its continued sharing of revenues with the hedge fund may have violated the RESPA Section 8 prohibition against fee splitting, the CFPB’s investigation confirmed that RESPA violations had occurred.  

The settlement bars the lender from taking a tax deduction or credit for the civil money penalty or from seeking or accepting any reimbursement or indemnification for the penalty, including under any insurance policy.  It also orders the lender to refrain from future violations of RESPA or other federal consumer financial laws.