CFPB busts Castle & Cooke Mortgage for violating new mortgage rules


The nation’s consumer watchdog took a bite out of an alleged new mortgage rules violator in a recent federal district court filing.

The filing seeks to force the mortgage lender to ante up as much as millions of dollars in restitutions to consumers and civil penalties paid to the government.

The Consumer Financial Protection Bureau (CFPB) charged Salt Lake City, UT-based mortgage company, Castle & Cooke Mortgage LLC, and two of its officers with illegally giving bonuses to loan officers who steered consumers into mortgages with higher interest rates.

The alleged actions are in direct violation of loan steering for profit regulations mandated by the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act and designed to help end the kind of mortgage lender abuse that heavily contributed to the housing crisis and Great Recession that followed.

“We are taking action against the type of practices that precipitated the financial crisis. Consumers should be able to get a mortgage without worrying about how the financial incentives of their loan officers may cause them to pay higher rates than they actually qualify for,” said CFPB Director Richard Cordray.

Castle & Cooke is a mortgage company that originated approximately $1.3 billion in loans in 2012. The company operates in some 22 states and maintains about 45 branches nationwide.

New mortgage rules violations

CFPB alleges that Castle & Cooke, through the actions taken by its president, Matthew A. Pineda, and senior vice-president of capital markets, Buck L. Hawkins, violated the Federal Reserve Board’s Loan Originator Compensation Rule that had a mandatory compliance date of April 6, 2011. Similar CFPB rules take effect in January 2014.

That rule banned compensation based on loan terms such as the interest rate of the loan.

The CFPB alleges that Castle & Cook violated the rule with its quarterly bonus program, which paid more than 150 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.

Loan officers who did not charge consumers higher interest rates did not receive quarterly bonuses.

The CFPB estimates that more than 1,100 illegal quarterly bonuses were paid and that tens of thousands of customers may have been upsold since April 2011. By tying bonuses to the interest rate of the loans in this manner, the CFPB alleges the mortgage lender was in direct violation of the law.

Castle & Cooke’s only reply to the charges came in an emailed response from Jeff Bell, marketing director, “The company has been cooperating with the CFPB in its investigation for more than a year, and anticipates an amicable resolution in this complex regulatory matter.”

The CFPB also charged Castle & Cook with violating new mortgage rules that require companies to retain records of rule compliance for a certain period of time. The complaint alleges that Castle & Cooke did not record what portion of each loan officer’s quarterly bonus was attributable to a particular loan and did not reference its quarterly bonus program in each loan originator’s compensation agreement, in violation of federal consumer financial law.

The CFPB’s complaint seeks to:

  • End unlawful compensation practices.
  • Ensure that Castle & Cooke retains records of compensation.
  • Secure restitution for consumers.
  • Obtain civil money penalties.

Dodd-Frank allows civil penalty amounts to be determined under a three-tiered framework: up to $5,000 for any violation; up to $25,000 for reckless violations; and up to $1,000,000 for knowing violations.

Investigators from the Utah Department of Commerce, Division of Real Estate referred the case to the CFPB. The complaint alleging violations of new mortgage rules was filed in the United States District Court for the District of Utah.

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