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CFPB Fines Mortgage Lender for RESPA Violations

February 25, 2014

The Consumer Financial Protection Bureau (CFPB) ordered Connecticut-based lender 1st Alliance Lending LLC to pay an $83,000 civil money penalty for violating federal law by illegally splitting real estate settlement fees.

First Alliance self-reported these violations to the Bureau, admitted liability, and provided information related to the conduct of other actors that has facilitated other enforcement investigations, the CFPB said in a release.

“These types of illegal payments can harm consumers by driving up the costs of mortgage settlements,” said CFPB Director Richard Cordray. “The Bureau will use its enforcement authority to ensure that these types of practices are halted. We will, however, also continue to take into account the self-reporting and cooperation of companies in determining how to resolve such matters.”

First Alliance primarily focuses on providing loss-mitigation financing to distressed borrowers. First Alliance obtains troubled mortgages from mortgage servicers, and reaches out to consumers to offer them new loans with reduced principal amounts under federally related mortgage programs.

According to the CFPB, First Alliance started using a hedge fund to finance its loans in 2010. Under this arrangement, First Alliance split revenues and fees with affiliates of the hedge fund. In 2011, First Alliance secured less costly financing and ended its arrangement with the hedge fund and its affiliates. Although the hedge fund and its affiliates no longer financed First Alliance’s mortgages, First Alliance continued to split origination and loss-mitigation fees with them, the CFPB reported. The hedge-fund affiliates received payments from 83 First Alliance loans made between August 2011 and April 2012.

In 2013, First Alliance reported to the Bureau that it believed it had violated the Real Estate Settlement Procedures Act (RESPA) by paying these unearned fees. RESPA bans a person from paying or receiving a portion or split of a fee that has not been earned in connection with a real estate settlement. First Alliance cooperated with the Bureau’s investigation, and the Bureau concluded that First Alliance’s payments to the hedge fund and its affiliates had violated RESPA.



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