CFPB Fines Connecticut Mortgage Lender For RESPA Violations

Posted by Patrick Barnard on February 24, 2014 No Comments
Categories : Required Reading

First Alliance Lending, a small mortgage lender based in Connecticut focused on providing loss mitigation financing to distressed borrowers, will pay an $83,000 fine to the Consumer Financial Protection Bureau (CFPB) for illegally splitting real estate settlement fees.

First Alliance turned itself in to the bureau after discovering the violations, the CFPB says in a press release.

‘These types of illegal payments can harm consumers by driving up the costs of mortgage settlements,’ says Richard Cordray, director of the CFPB, in the release. ‘The bureau will use its enforcement authority to ensure that these types of practices are halted. We will, however, also continue to take into account the self-reporting and cooperation of companies in determining how to resolve such matters.’

According to the release, First Alliance obtains troubled mortgages from mortgage servicers – then reaches out to borrowers to offer new loans with reduced principal amounts under federally related mortgage programs.

In 2010, First Alliance was working with a hedge fund with which it split revenues and fees. In 2011, First Alliance secured less costly financing and ended its arrangement with the hedge fund.

According to the release, although the hedge fund and its affiliates no longer financed First Alliance's mortgages, First Alliance continued to split origination and loss-mitigation fees with them. The hedge-fund affiliates received payments from 83 First Alliance loans made between August 2011 and April 2012.

In 2013, officials from First Alliance reported to the CFPB that, by paying these unearned fees, First Alliance may have violated the Real Estate Settlement Procedures Act (RESPA), which bans a person from paying or receiving a portion or split of a fee that has not been earned in connection with a real estate settlement.

The release does not state whether First Alliance got a break on the penalties as a result of the fact that it turned itself in – however, the release does say that its self-reporting and cooperation was ‘taken into account.’

The release says the lender provided information that could lead to additional enforcement actions.

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