Prospect Mortgage, a Sherman Oaks, California based lender has been cited by the Consumer Financial Protection Bureau (CFPB) for paying illegal kickbacks for mortgage business referrals. Two real estate brokers and a mortgage servicer were accused of taking those kickbacks.

CFPB said Prospect is one of the largest independent retail mortgage lenders in the country with nearly 100 branches nationwide, offering a range of mortgages to consumers, including conventional, FHA, and VA loans. Also named in the several actions taken were two real estate brokers, RGC Services, Inc., (doing business as ReMax Gold Coast), based in Ventura, California, and Willamette Legacy, LLC, (doing business as Keller Williams Mid-Willamette), based in Corvallis, Oregon, and Planet Home Lending, LLC, a mortgage servicer headquartered in Meriden, Connecticut.

The Bureau alleges that, from at least 2011 through 2016, the Prospect used a variety of schemes to pay kickbacks for referrals of mortgage business in violation of the Real Estate Settlement Procedures Act. These included setting up marketing services agreements with other companies, which were framed as payments for advertising or promotional services, but served to disguise payments for referrals.

The CFPB's investigation found that ReMax Gold Coast and Keller Williams Mid-Willamette accepted illegal payment for referrals. Both companies were among more than 100 brokers who had marketing services agreements, lead agreements, and desk-license agreements with Prospect, which were, in whole or in part, vehicles to obtain illegal payments for referrals. The Real Estate Settlement Procedures Act prohibits brokers and agents from exploiting consumers' reliance on these recommendations by accepting payments or kickbacks in return for referrals to particular service providers.

Specifically, it is alleged that Prospect:

  • Paid brokers to require consumers - even those who had already prequalified with another lender - to prequalify with Prospect.  One method Prospect used to obtain referrals was to have brokers engage in a practice of "writing in" Prospect into their real estate listings.  This meant that brokers and their agents required anyone seeking to purchase a listed property to obtain prequalification with Prospect, even consumers who had prequalified for a mortgage with another lender.
  • Split fees with a mortgage servicer to obtain consumer referrals.  Prospect and Planet Home Lending had an agreement under which Planet worked to identify and persuade eligible consumers to refinance with Prospect for their Home Affordable Refinance Program (HARP) mortgages. Prospect compensated Planet by splitting the proceeds of the sale of such loans evenly with Planet and then sent the resulting mortgage servicing rights back to them.

Under the terms of the action announced on Wednesday, Prospect will pay a $3.5 million civil penalty for its illegal conduct. and the real estate brokers and servicer will pay a combined $495,000 in consumer relief, repayment of ill-gotten gains, and penalties with ReMax Gold Coast paying $50,000 in civil money penalties, and Keller Williams Mid-Willamette liable for $145,000 in disgorgement and $35,000 in penalties.

"Today's action sends a clear message that it is illegal to make or accept payments for mortgage referrals," said CFPB Director Richard Cordray. "We will hold both sides of these improper arrangements accountable for breaking the law, which skews the real estate market to the disadvantage of consumers and honest businesses."