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Trade group defends RPM Mortgage in steering case

The Mortgage Bankers Association (MBA) has come to the defense of a California mortgage company that reached a multimillion dollar settlement with federal regulators last week, a case where the mortgage company was accused of steering consumers into higher-priced loans.

In a statement, MBA President David Stevens said that the Consumer Financial Protection Bureau (CFPB) has made it a habit of issuing dense and confusing rules and then declining to clarify them in writing.

As a result, companies have had a hard time complying with the letter of the law, and the CFPB then circles back and issues penalties “retroactively,” Stevens said.

"It should be no surprise, therefore, that this ‘regulate by enforcement’ approach has created tight credit conditions, as fearful lenders avoid even prudent risk-taking activities,” Stevens said. “The repetition of this misguided approach across a variety of new mortgage-related rules is increasing the costs and restricting the availability of credit for qualified borrowers.”

Last week, CFPB Director Richard Cordray sternly rebuked RPM Mortgage Inc. and its chief executive officer in a news release and conference call with reporters, saying the company paid millions in bonuses and into expense accounts to loan officers to reward them for closing loans with higher interest rates. The Bureau also filed a proposed settlement in the U.S. District Court of Northern California that would require RPM to pay an $18 million fine.

CEO Erwin Robert Hirt, who was accused of setting up the compensation plan to mask a scheme to steer consumers into the higher-priced mortgages, would pay an additional $1 million penalty under the proposed settlement. Last week, RPM issued a statement that it had settled the matter “without an admission of wrongdoing in order to avoid the cost and distraction of litigation.”

In its own prepared statement, RPM also noted that the CFPB’s news release that accused the company of steering consumers didn’t match the allegations in the complaint filed with the federal court. The court documents alleged that the company merely established a framework that could provide incentives for loan officers to charge higher-priced loans.

CFPB guidance is lacking

The alleged violations occurred after a new federal rule against predatory lending started to be enforced in 2011. RPM allegedly continued the practices into 2013.

Stevens said MBA repeatedly sought clarification from the Federal Reserve, which issued the loan officer compensation rule in 2010 under the Dodd-Frank act, and later from the CFPB, which took over its enforcement. In 2014, the Bureau finally clarified the regulations, Stevens said.

“The rule has long been a subject of industry confusion because of its broad and prescriptive reach into the smallest details of lender compensation plans and the lack of clear guidance on how to comply,” Stevens said. 

Stevens also called on the CFPB to modify its enforcement strategies, and start issuing clearer written guidance so that companies can avoid problems.

“The CFPB should reserve aggressive enforcement actions and punitive monetary penalties for egregious violations that result in proven consumer harm," he said. 


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