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CFPB vs. PHH—An Unexpected Conclusion

After spending several years working its way through the court system, on Thursday the legal battle between PHH Corp. and the Consumer Financial Protection Bureau ended in a way few would have anticipated when it began back in 2015. BCFP Acting Director Mick Mulvaney officially dropped the case against PHH, stating in a two-page legal filing that the company had not, in fact, violated the Real Estate Settlement Procedures Act (RESPA).

RESPA holds that lenders and servicers cannot receive kickbacks for loans. PHH stood accused of taking kickbacks from mortgage insurers, and in 2014 a judge hit the company with a $6 million fine. Then-CFPB Director Richard Cordray overruled that decision in 2015, ordering PHH to instead pay $109 million. PHH sued, with part of its argument hinging upon claims that the structure of the CFPB was itself unconstitutional. This past January, the U.S. Court of Appeals for the D.C. Circuit dismissed the fine against the CFPB but found that the bureau itself was constitutionally sound.

In Mulvaney’s legal filing this week, the BCFP Acting Director wrote, “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.”

In a statement, PHH said, “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.”

Mulvaney’s action followed a joint statement issued by BCFP Enforcement Director Kristen Donoghue and a team of Bureau attorneys on Tuesday of this week. That statement recommended that Mulvaney drop the case, stating, “Enforcement Counsel and Respondents have conferred, and have agreed to recommend dismissal of this administrative proceeding. Accordingly, Enforcement Counsel and Respondents respectfully request that the Acting Director proceed to dismiss this matter.”

In February 2018, Ocwen Financial Corporation announced it was buying PHH for $360 million. The deal is expected to close in the second half of 2018.

Ron Faris, President and CEO of Ocwen, said at the time, “We are very pleased to announce the proposed acquisition of PHH, a leading non-bank servicer. PHH is a high-quality servicer with complementary capabilities and business lines to Ocwen, making it a great strategic match for us. In addition to providing significant scale benefits, this transaction gives us the opportunity to migrate to their existing BlackKnight LoanSphere MSP servicing platform more quickly and with less risk than had we just implemented the system ourselves. We are also excited by the opportunity to welcome the PHH employees to the Ocwen family and by the opportunity to bring our industry-leading and innovative loss mitigation capabilities to existing PHH servicing customers currently struggling with their mortgage payments.”

About Author: David Wharton

David Wharton, Editor-in-Chief at the Five Star Institute, is a graduate of the University of Texas at Arlington, where he received his B.A. in English and minored in Journalism. Wharton has nearly 20 years' experience in journalism and previously worked at Thomson Reuters, a multinational mass media and information firm, as Associate Content Editor, focusing on producing media content related to tax and accounting principles and government rules and regulations for accounting professionals. Wharton has an extensive and diversified portfolio of freelance material, with published contributions in both online and print media publications. He can be reached at [email protected].

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