CFPB Penalizes Freedom Mortgage and Realty Connect for RESPA Violations

Freedom Mortgage Corporation has been ordered to pay $1.75 million into the Consumer Financial Protection Bureau’s victim relief fund for providing illegal incentives to real estate brokers and agents in exchange for mortgage loan referrals.

According to the CFPA, Freedom provided real estate agents and brokers with numerous incentives — including cash payments, paid subscription services, and catered parties — with the understanding they would refer prospective homebuyers to Freedom for mortgage loans, which violated the Real Estate Settlement Procedures Act and its implementing regulation.

RESPA helps reduce closing costs for homebuyers and increases competition in the marketplace by prohibiting mortgage loan originators from offering referral incentives and kickbacks to other companies in exchange for referring homebuyers.

“If your brokerage is approached by a service provider who suggests a similar arrangement, take the written proposal to brokerage counsel for review. The details of RESPA can be tricky, and you will want an attorney who is familiar with the Act and its enforcement to provide you with an outline of acceptable arrangements,” said Desiree Brougher, PAR assistant general counsel.

The CFPB separately issued an order against a real estate brokerage firm, Realty Connect USA Long Island, for accepting numerous illegal kickbacks from Freedom. Realty Connect will pay a $200,000 penalty and cease its unlawful conduct.

“Freedom provided kickbacks to real estate brokers and agents — including those at Realty Connect — in return for mortgage referrals, a clear violation of federal law,” said CFPB Director Rohit Chopra. “The CFPB will be vigilant in rooting out anti-competitive behavior that interferes with consumers’ ability to choose financial products and services.”

The CFPB found Freedom and Realty Connect violated the Real Estate Settlement Procedures Act. The specific violations include:

• Paying for referrals through illegal marketing service arrangements. Freedom entered into marketing services agreements with over 40 real estate brokerages where Freedom made monthly payments totaling approximately $90,000 to brokerages in exchange for the brokerages’ marketing services. However, Freedom used these marketing services agreements as a way to pay for mortgage referrals, rather than compensate the brokerages for marketing services they actually performed. Realty Connect received $6,000 per month from Freedom, but failed to perform many of the marketing tasks required under the agreement.
• Offering premium subscription services free of charge. Freedom gave real estate brokers and agents free access to valuable industry subscription services, which provided information concerning property reports, comparable sales, and foreclosure data. Freedom paid thousands of dollars per month for one of the subscription services and Freedom provided access to over 2,000 agents for no cost. Freedom often required real estate agents and brokers to agree to be paired with a Freedom loan officer before Freedom would give them access to its subscription services. Since 2017, the real estate agents who received free access to these subscription services—including agents at both Realty Connect and other brokerages—made more than 1,000 mortgage referrals to Freedom.
• Hosting and subsidizing company events and providing gifts. Freedom hosted parties and other events for real estate agents and brokers, including events held exclusively for Realty Connect brokers and agents. Freedom paid for the food, beverages, alcohol, and entertainment. Freedom would also sometimes give free tickets to sporting events, charity galas, or other events where the agents and brokers would have otherwise needed to pay their own way. Freedom also denied requests for event sponsorship from real estate brokerages that did not refer mortgage business to Freedom’s loan officers.

You can read the CFPB’s order against Freedom online, as well as the CFPB’s order against Realty Connect.