Feds Go After Bay Area Mortgage Firm

SAN FRANCISCO (CN) - A Bay Area mortgage company illegally rewards employees for steering customers into higher interest loans, the Consumer Financial Protection Bureau claims in court.

The Consumer Financial Protection Bureau sued RPM Mortgage and its CEO Erwin Robert Hirt in Federal Court. It claims that RPM and Hirt, who also is a real estate broker, disguised the illegal bonuses by funneling them through employee "expense accounts."

"In 2011 alone, RPM paid millions of dollars in periodic bonuses to its loan officers from their employee-expense accounts," the Bureau says in its June 4 lawsuit.

It claims that in 2012 and 2013 alone, "RPM permitted its loan officers to withdraw about 55 percent of the existing employee expense-account balances to pay for millions of dollars in supplemental commissions and pricing-concession subsidies."

RPM Mortgage is based in Alamo, Calif., an unincorporated area of Contra Costa County. Hirt is one of the company's two shareholders and directors.

RPM operates 60 branches in six states, down from 18 states in 2001-13, when it originated "tens of thousands of mortgage loans worth billions of dollars," the bureau says.

It claims that Hirt and RPM violate a Federal Reserve Board rule from September 2010 that prohibits loan officers from being paid "based on a term or condition of a mortgage loan, including the interest rate." The rule also prohibited "point-bank" schemes, which allowed loan officers to "bank profits on one loan to supplement their compensation on future ones."

The Bureau says Hirt and RPM began violating this rule in April 2011 by paying loan officers more to steer customers into higher rate loans, "in part, based on the interest rates of the loans they closed. Loans with higher rates created more profits for RPM."

But RPM disguised this "by funneling it through so-called employee-expense accounts."

"RPM deposited profits from an officer's closed loans - profits that were a direct product of the loans' interest rates - into the loan officer's employee-expense account, and then used it to pay her bonuses and increased commissions. RPM also allowed loan officers to use their employee-expense accounts to offset interest-rate reductions ... or appraisal costs they sometimes granted to avoid losing loans to a competitor," the bureau says.

RPM thereby violated the compensation rule and the point-bank rule, the bureau says.

The bureau seeks disgorgement, penalties, costs and an injunction, but announced on Monday it had settled the case.

Under the agreement, RPM will pay $18 million and never again compensate a loan originator. The company also agreed to report regularly to the bureau.

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