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Steering Consumers to Expensive Mortgage Loans
  

7/24/13
Article - Excerpts
Core of the Complaint
Up-charging a Borrower
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The CFPB announced that it had filed a complaint yesterday in a federal district court against Utah-based Castle & Cooke Mortgage, LLC ("C & C") and two of its officers for illegally giving bonuses to loan officers who steered consumers into mortgages with higher interest rates.

 

 C & C is not some mom and pop mortgage company: in 2012 it originated in the range of $1.3 billion, and it does business in at least 22 states, and maintains approximately 45 branches across the country.

 

In this newsletter, I would like to provide an outline of the case and offer some thoughts about managing risk.

 

Regards,
Jonathan Foxx

President and Managing Director 
Excerpt 
Core of the Complaint

 

At the core of the complaint is the allegation that C & C violated the Loan Originator Compensation Rule ("LOC Rule") which bans compensation based on loan terms, such as the interest rate of the loan. Specifically, the CFPB alleges that C & C violated the LOC Rule by establishing a quarterly bonus program, which paid certain C & C loan officers greater bonus compensation when they persuaded consumers to take on more expensive loans. The average quarterly bonus ranged from $6,100 to $8,700.  
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Excerpt
Up-charging a Borrower


   
   
The idiomatic expression for this is called "selling up" or "upselling the consumer" or "up-charging the borrower." So, briefly put, the CFPB alleges that more than 1,100 illegal quarterly bonuses were paid - where the loan officers had been given the forgoing incentive - and that tens of thousands of customers may have been upsold by C & C since April 6, 2011, the compliance effective date of the LOC Rule.

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LENDERS COMPLIANCE GROUP is the first full-service, mortgage risk management firm in the United States specializing exclusively in outsourced mortgage compliance and offering a full suite of services in residential mortgage banking for banks and non-banks. We are pioneers in outsourcing solutions for residential mortgage compliance. We offer our clients real-world, practical solutions to mortgage compliance issues, with an emphasis focused on operational assessment and improvement, benchmarking methodologies, Best Practices, regulatory compliance, and mortgage risk management.
 
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