The Consumer Financial Protection Bureau has dismissed its proceedings against a mortgage lender for mortgage insurance kickback violations. CFPB Acting Director Mick Mulvaney ordered the dismissal of the administrative proceeding against PHH Corporation which began under former Director Richard Cordray for allegedly referring consumers to mortgage insurers in exchange for kickbacks in the form of mortgage reinsurance premiums paid by the mortgage insurers. Mulvaney’s order dismissing the proceedings stated that “it is now the law of this case” that PHH did not violate RESPA even if there was a quid pro quo for referrals as long as the required reinsurance was priced at reasonable market value.
In an official statement, PHH Corporation stated “We are extremely gratified to have this matter fully resolved as a result of Acting Director Mulvaney’s decision to dismiss this case. Today’s Order is consistent with our long-held view that we complied with RESPA and other laws applicable to our former mortgage reinsurance activities in all respects.”
Retroactive violations rejected. PHH appealed the Bureau’s decision, arguing that the retroactive application of the Real Estate Settlement Procedures Act had denied the company due process. PHH argued that the CFPB changed a long-standing Department of Housing and Urban Development RESPA interpretation that allowed captive reinsurance arrangements as long as the reinsurance was purchased at market prices, and then applied its reinterpretation of RESPA to past PHH conduct.
In October 2016, a three-judge panel of the U.S. Court of Appeals for the District of Columbia Circuit unanimously rejected the Bureau’s claims that there was no statute of limitations that restricted its ability to enforce RESPA against PHH. To successfully show a RESPA violation by PHH Corporation, the Bureau needed to prove that mortgage insurers paid a PHH-affiliated reinsurer above-market premiums less than three years before the enforcement action was initiated.
The court found that even if the CFPB’s reinterpretation was correct, it could not be applied to earlier conduct. The CFPB could still enforce the RESPA anti-kickback provisions against PHH if it showed that the mortgage insurers paid the PHH reinsurance subsidiary more than the reinsurance was worth, the court said. However, the violation also had to be within the statute of limitations. PHH claimed that most of the relevant activities were more than three years old, which would be too old to be the basis of enforcement.
On appeal, the original three-judge panel decision on the RESPA issues was reinstated by an opinion of the full court, which then remanded the administrative proceeding to the CFPB.
Attorneys for the Bureau and PHH agreed to recommend dismissal of the administrative proceeding and submitted a request to Mulvaney to dismiss the matter. Mulvaney accepted the recommendation. According to Mulvaney’s order, the court’s reinstatement means that PHH did not violate RESPA “if it charged no more than the reasonable market value for the reinsurance it required the mortgage insurers to purchase, even if the reinsurance was a quid pro quo for referrals.”
Support in Congress. House Financial Services Committee Chairman Jeb Hensarling (R-Texas) applauded the dismissal. Hensarling issued a statement calling Mulvaney’s actions “needed to continue the agency’s transformation into one that follows the law as written.” Hensarling stated that former CFPB Director Richard Cordray “unilaterally reversed accepted law with regards to Section 8(c) of RESPA, and did so not with formal rulemaking, but with an ad hoc enforcement action instead.”
Representative Luke Messer (R-Ind) also applauded the decision to dismiss the case. According to Messer, the CFPB “never had the authority to retroactively impose fines beyond the statute of limitations.”
