The Consumer Financial Protection Bureau said Thursday it was charging Castle & Cooke Mortgage $13 million in penalties for allegedly pushing consumers into costlier mortgages in order to give kickbacks to loan officers.
The agency said Thursday that it filed a proposed consent order against Utah-based Castle & Cooke in federal district court that includes a $4 million civil money penalty and more than $9 million in restitution to consumers who were harmed. The agency accused Castle & Cooke, along with two of its executives, for paying loan officers illegal bonuses that were based on charging higher interest rates to borrowers.
"Our action has put an end to illegal steering of consumers and has put more than $9 million back in their pockets," said CFPB Director Richard Cordray in a press release. "This outcome embodies our mission—to root out bad practices from the marketplace and ensure consumers are being treated fairly."
Since the CFPB filed its first complaint against the company in July, industry observers have said it sent a strong message to mortgage originators to tread carefully in how loan officers are paid. More enforcement actions are expected as new mortgage rules take effect in January that will restrict loan officer compensation and include multiple parties involved in the pricing of the mortgage.
"In this day and age lenders have to be very, very careful," said Fred Kreger, a branch manager at California-based mortgage bank American Family Funding, in a recent interview with American Banker. "The statute says that compensation cannot be arbitrary and the reason they want written procedures is to have clearly defined rules that loan officers abide by, so they cannot charge borrowers differently."
The CFPB said in its initial complaint that Castle & Cooke paid more than $4 million in bonuses ranging from $6,100 to $8,700 each between July 2011 and May 2012. The agency estimates that roughly 215 Castle & Cooke loan officers received bonuses from charging higher mortgages to more than 9,400 consumers. Castle & Cooke originated about $1.3 billion in loans last year and operates in 22 states including California, Florida and Texas.
The CFPB's initial July complaint was against the company and two officers: the president, Matthew Pineda, and senior vice-president of capital markets, Buck Hawkins. The agency has requested that the U.S. District Court in Utah approve its order requiring Castle & Cooke to stop such bonus activity and pay fines and restitution to borrowers who received a loan since April 6, 2011 that was tied to a bonus.
The company did not admit or deny the allegations, as customary with consent orders, but said in a following statement that it had agreed to the fines to put the matter behind it.
"With today's resolution we are pleased that we can now focus our undivided attention on our core mission: extending high quality loans and superior service to borrowers," the company said. "The regulations are complex, but we are committed to legal and regulatory compliance in our lending."
