RESPA Section 8 Enforcement Actions for Freedom Mortgage From the CFPB

Posted on by Kimberly Boatwright, CAMS, CRCM

2023 does not appear to be Freedom Mortgage Corporation’s year.  Yesterday, they received another enforcement action from the CFPB alleging they provided false information to Federal Regulators.  This follows the August penalty for illegal kickbacks.

In August, the CFPB took action against Freedom for violating the most basic requirements of RESPA Section 8.   They were found to be providing illegal incentives to real estate brokers and agents in exchange for mortgage loan referrals. Freedom provided real estate agents and brokers with numerous incentives — including cash payments, paid subscription services, and catered parties — with the understanding they would refer prospective homebuyers to Freedom for mortgage loans. This practice was in violation of the Real Estate Settlement Procedures Act and its implementing regulation. The sole purpose of RESPA is to reduce closing costs for homebuyers and increase competition in the marketplace by prohibiting mortgage loan originators from offering referral incentives and kickbacks to other companies in exchange for referring homebuyers.

In a statement by Director Rohit Chopra, he stated” Freedom provided kickbacks to real estate brokers and agents — including those at Realty Connect — in return for mortgage referrals, a clear violation of federal law,” “The CFPB will be vigilant in rooting out anti-competitive behavior that interferes with consumers’ ability to choose financial products and services.”

The CFPF found that the violations included:

  • Paying for referrals through illegal marketing service arrangements: Freedom entered into marketing services agreements with over 40 real estate brokerages where Freedom made monthly payments totaling approximately $90,000 to brokerages in exchange for the brokerages’ marketing services.
  • Offering premium subscription services free of charge: Freedom gave real estate brokers and agents free access to valuable industry subscription services, which provided information concerning property reports, comparable sales, and foreclosure data. Freedom paid thousands of dollars per month for one of the subscription services, and Freedom provided access to over 2,000 agents for no cost.
  • Hosting and subsidizing company events and providing gifts: Freedom hosted parties and other events for real estate agents and brokers, including events held exclusively for Realty Connect brokers and agents. Freedom paid for the food, beverages, alcohol, and entertainment. Freedom would also sometimes give free tickets to sporting events, charity galas, or other events where the agents and brokers would have otherwise needed to pay their own way. Freedom also denied requests for event sponsorship from real estate brokerages that did not refer mortgage business to Freedom’s loan officers.

Yesterday’s lawsuit by the CFPB against Freedom is another example of failing to follow the basic principles of regulatory requirement but this time HMDA.  They had already received enforcement action in 2019, for reporting false data.  The time frame focused on the years of 2014 -2017. During this period Freedom reported inaccurate race, ethnicity, and sex information and finding that much of Freedom’s loan officers’ recording of this incorrect information was intentional. For example, certain loan officers were told by managers or other loan officers that, when applicants did not provide their race or ethnicity, they should select non-Hispanic white regardless of whether that was accurate. They paid a $1.75 million CMP for inaccurate data!

HMDA requires mortgage lenders to report information about loan applications and originations to the CFPB and other federal regulators. HMDA data are the most comprehensive source of publicly available information on the U.S. mortgage market. The public and regulators can use the information to monitor whether financial institutions are serving the housing needs of their communities, and to identify possible discriminatory lending patterns.

This is Freedom’s second offense in two exam cycles for bad HMDA data.

During this cycle, which focused solely on 2020, the CFPB alleges:

  • Freedom reported information to regulators with widespread inaccuracies: After the CFPB found 51 errors in an initial review of 159 files in Freedom’s 2020 submission, the company had to resubmit its data. In that resubmission, Freedom corrected errors in 35 different required HMDA data fields some of which were the same as the prior enforcement action—this data reflected errors in over 174,000 data entries affecting nearly 20 percent of Freedom’s mortgage loan applications.
  • Freedom violated a 2019 law enforcement order: Freedom was ordered in 2019 to clean up its deficient data practices but failed to do so. Instead, it continued to provide federal regulators with error-ridden data.

The CMP for this second HMDA offense is still to be determined.  However, to date they have paid $3.5 million in penalties that could have easily been avoided.

To that end, we have many training courses, both upcoming and on-demand, in addition compliance tools that can assist your institution avoid these kinds of enforcement actions and fines.

On-Demand Webinars:

Compliance Tools:

 

Additionally, if you have any questions about RESPA, HMDA, or Real Estate Lending, don’t hesitate to reach out to us at support@mycomplianceresource.com. We’d be glad to help you through it.