WASHINGTON—The CFPB has taken action against a mortgage company, alleging the firm illegally paid bonuses and higher commissions to loan originators to incentivize them to steer consumers into costlier mortgages.
Thursday the CFPB filed a complaint in federal district court against RPM Mortgage, Inc. and its CEO, Erwin Robert Hirt. The Bureau also filed a proposed order that, if entered by the court, would require RPM to pay $18 million in redress to consumers and a $1 million civil penalty, and would require Hirt to pay an additional $1 million civil penalty.
“RPM rewarded its loan officers for steering consumers into mortgages with higher interest rates,” said CFPB Director Richard Cordray in a release. “Today we are putting an end to RPM’s unlawful practices and holding Robert Hirt personally responsible for his involvement in them.”
RPM Mortgage is a residential-mortgage lender headquartered in California and operates about sixty branches across six states. In April 2011, the CFPB stated, RPM instituted a compensation plan that gave loan officers financial incentives to steer consumers into higher-rate mortgage loans. RPM provided its loan officers with different forms of compensation that were derived in part from the interest rates of the loans they closed, the agency said.
The CFPB alleges that the company sought to mask this interest-rate-based compensation by filtering it through so-called “employee-expense accounts.”
“RPM deposited profits from an originator’s closed loans – profits that were directly tied to the loans’ interest rates – into an expense account set up for the originator,” the CFPB stated. “RPM used the expense accounts to pay bonuses and higher commissions to its loan originators. The company also allowed loan originators to tap their expense accounts to offset interest-rate reductions or give credits to certain customers to avoid losing the transactions to competitors. RPM paid or financed millions of dollars in unlawful bonuses, pricing concessions, and supplemental commissions.”
Starting in 2011, the Loan Originator Compensation Rule has prohibited incentivizing loan originators to steer consumers to costlier mortgages. The CFPB has enforced the rule since July 21, 2011. The CFPB said Hirt was responsible for managing the design and implementation of the compensation plan.