This goes under the “Are you kidding me?” category. CFPB has filed an order for RPM Mortgage, a California lender, to pay $19 million dollars in fines; $18 million as rebates to harmed consumers and $1 million in civil money penalties. They also ordered RPM’s CEO, Erwin Robert Hirt, to personally pay an additional $1 Million civil penalty. The total fines are at $20 million (RPM Fines). Now that hurts (excuse the pun).
When will we ever learn? The Safe Act introduced new loan originator compensation rules in 2011. One of the main elements of the rule is that originators may not be paid compensation based on the terms of the loan; biggest one being the loan’s interest rate. It was pretty clear and one that was widely discussed and dissected.
So, how (and why) then did RPM go about paying their originators higher amounts for loans with higher rates? They didn’t do so directly, as was done in the old days via an “overage”, by splitting the higher market gain with the LO. No, they were slick, they used the old “point bank” scheme.
RPM didn’t pay the overage directly, they deposited the LO’s split into a separate account for “expenses”. The LO could then dip into this “bank” to cover reduced fees and/or rates to garner business from other borrowers. In essence, the borrowers who paid the higher fees were in some cases supplementing the costs of other borrowers. The LO made commissions either way. Unfortunately, it wasn’t legal.
RPM says it didn’t do anything wrong, nor did they harm any consumers. However to avoid a costly drawn out battle with CFPB they decided to settle without admitting any wrongdoing.
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If you are not absolutely, positively sure your LO comp plans are in full compliance with the Safe Act, I suggest you have them reviewed by a qualified attorney. The investment and peace of mind is well worth it. RPM thought they were okay; they found out the hard way they were not okay.
Don’t get caught with your comps down.