The Consumer Financial Protection Bureau (“CFPB”) is alleging some heavy stuff against New Jersey’s own PHH Corporation and its subsidiaries, such as PHH Mortgage Corporation and PHH Home Loans, LLC. The allegation is made by way of an administrative proceeding against PHH.

Representing homeowners, I find myself raising arguments that often go to the heart of loan origination fraud. Despite this situation being bad news for a local, mega-entity that is “PHH”, I do have to say that it refreshing to see the CFPB examining these issues and raising allegations of this level. Broker fraud at loan origination can financially devastate a family, and the bait-and-switch games that were played bother me deeply. Not to mention consumer’s homes being equity-stripped.

What is the CFPB?

The Consumer Financial Protection Bureau is a 21st century agency that helps consumer finance markets work by making rules more effective, by consistently and fairly enforcing those rules, and by empowering consumers to take more control over their economic lives.

What is this all about?

It is alleged that PHH either established (or, permitted a system) that allowed kickbacks on loans.  As a general matter, kickbacks lead to heavy profits for the loan brokers who were getting the money on the street from their lenders. The loans were often table-funded and either had no (or very little) document or verification requirements.

With kickbacks, loan brokers were making more money than was being disclosed on the loan paperwork. Think about that. Think about the system that is set up when people are profiting wildly at [your?][mine?][grandmom’s?] expense. Not cool.

More Details re: PHH

The Bureau believes that from the start of the arrangements, and continuing into at least 2009, PHH manipulated its allocation of mortgage insurance business to maximize kickback reinsurance payments for itself. PHH Corporation and its affiliates are specifically accused of:

  • Kickbacks: Over the approximately 15-year scheme, the CFPB alleges that PHH set up a system whereby it received as much as 40 percent of the premiums that consumers paid to mortgage insurers, collecting hundreds of millions of dollars in kickbacks;
  • Overcharging Loans: In some cases, PHH charged more money for loans to consumers who did not buy mortgage insurance from one of its kickback partners. In general, they charged these consumers additional percentage points on their loans; and
  • Creating Higher-Priced Insurance: PHH pressured mortgage insurers to “purchase” its reinsurance with the understanding or agreement that the insurers would then receive borrower referrals from PHH. PHH continued to steer business to its mortgage insurance partners even when it knew the prices its partners charged were higher than competitors’ prices.

Check out the CFPB’s website for more information.

What Now? What If I Have A PHH Mortgage? What If I Used To Have A PHH Mortgage?

Keeping in mind that this is an allegation, nothing has been proven. You may want to review your loan origination package, including your HUD-1 Settlement Statement and the loan application. From there, you should probably have a conversation with your accountant and real estate attorney with regard to your goals and overall perspective regarding this particular piece of real estate attached with the “PHH” loan product.

Maybe I will not be the only one looking at how this progresses,
-Lou