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Another YSP Settlement

LO Comp rule allegedly violated

June 4, 2015 (updated 2:37 p.m.)

By Mortgage Daily staff



A slew of recent settlements center on the use of yield spread premiums and the impact they have on borrowers. The latest such agreement alleges that a lender used tactics to hide such illegal activities.

Among firms that previously settled allegations that the use of YSPs on their loans had a discriminatory disparate impact on minorities were National City Bank and Provident Funding Associates LP -- which just settled last week.

Those settlements addressed discriminatory pricing that occurred prior to July 21, 2011, when the Consumer Financial Protection Bureau implemented the Loan Originator Compensation Rule as required by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.

Firms that have settled allegations of violating the LO Compensation rule through the utilization of YSPs include Franklin Loan Corp. and Castle & Cooke Mortgage LLC.

Now, another mortgage company has agreed to settle charges that it violated the LO Compensation rule and discriminated against minorities.

The CFPB announced Thursday that it has reached an agreement with RPM Mortgage Inc.

According to the statement, RPM implemented a compensation plan in April 2011 that provided originators with financial incentives to charge borrowers higher interest rates -- in direct violation of the LO Compensation rule.

The Alamo, California-based firm operates around 60 branches in six states.

RPM is accused of masking the illegal compensation by running it through employee-expense accounts.

YSPs were allegedly deposited into an expense account set up for the originator. The account was then used to pay bonuses and higher commissions to its originators.

The CFPB claims 511 such bonus payments were made to originators.

RPM allegedly stopped making the bonus payments by the end of 2011 and instead started using the YSP funds to supplement future commissions. This was done by using funds from the account to offset interest-rate reductions or provide credits to some customers in order to avoid losing a transaction.

"Loan officers were able to reset their commission rates on future loans by using employee-expense account funds to cover the increased costs," the bureau stated. "In this way, profits from earlier high-interest loans were converted into tens of millions of dollars in commission income."

Millions of dollars in unlawful bonuses, pricing concessions and supplemental commissions were allegedly paid out by RPM.

Borrowers were effectively saddled with costlier loans in order to increase originator compensation.

The compensation plan was allegedly masterminded by RPM Chief Executive Officer Erwin Robert Hirt.

As part of the settlement, RPM has agreed to pay $18 million in borrower redress. In addition, RPM and Hirt will each pay a $1 million civil penalty.

"The company chose to settle this matter without an admission of wrongdoing in order to avoid the cost and distraction of litigation," RPM said in a written statement.

The agreement, if approved by the U.S. District Court for the Northern District of California, would also require RPM and Hirt to comply with the LO Compensation rule.


Consumer Financial Protection Bureau, Plaintiff, v. RPM Mortgage, Inc. and Erwin Robert Hirt, individually, Defendants.
Case No. 4:15-cv-02475, June 4, 2015 (U.S. District Court for the Northern District of California)

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