CFPB Sues Mortgage Company Over Alleged Loan Officer Compensation Practices

CFPB Mortgage Origination Compensation Regulation Z

This afternoon, the CFPB released a complaint it filed today against a Utah-based mortgage company and two of its officers for giving bonuses to loan officers who allegedly steered consumers into mortgages with higher interest rates. The complaint alleges that the company, and its president and senior vice-president of capital markets, violated the Federal Reserve Board’s Loan Originator Compensation Rule by instituting a quarterly bonus program that paid more than 150 loan officers greater bonus compensation based on the terms and conditions of the loans they closed.  The CFPB claims the program incentivized loan officers to steer consumers into loans with higher rates.

According to the complaint, when the Loan Originator Compensation Rule took effect in April 2011, the company amended its program to eliminate any written reference to compensation based upon terms or conditions, making it appear on its face to be a compliant compensation program.  The CFPB alleges that although the company’s regular compensation was no longer tied to terms or conditions under the new program, the managers actually continued to adjust the quarterly bonuses based upon the terms and conditions established under the compensation program.

The complaint further alleges violations of Regulation Z’s requirement that a creditor retain records of compensation paid to loan originators for two years.  According to the complaint, the company violated this requirement by failing to record what portion of quarterly bonuses paid to loan originators were attributable to a given loan and by failing to maintain accurate and complete compensation agreements.

The case highlights a number of points:

• The CFPB will look beyond a company’s written compensation and compliance plans to include analysis of a company’s actual compensation payments to its loan originators;

• The CFPB is pursuing individuals in senior management;

• $1 billion companies are within range for CFPB actions;

• The CFPB is seeking an injunction, restitution, civil money penalties for each bonus paid, and costs; and

• The case was referred to the CFPB by the Utah Department of Commerce.