No one can predict the future, but you can prepare. Find out what to prepare for and pick up the tools you’ll need at the immersive Virtual Inman Connect on Nov. 1-2, 2023. And don’t miss Inman Connect New York on Jan. 23-25, 2024, where AI, capital, and more will be center stage. Bet big on the roaring future, and join us at Connect.
Freedom Mortgage Corp. has agreed to pay a $1.75 million fine to federal regulators to settle allegations that marketing services agreements the lender had with more than 40 real estate brokerages were used to channel illegal kickbacks that generated more than 1,000 mortgage referrals.
In announcing the settlement with Freedom Mortgage, the Consumer Financial Protection Bureau said one of the real estate brokerages that allegedly participated in the scheme — Realty Connect USA Long Island — has also agreed to pay a $200,000 civil penalty.
Freedom Mortgage and Realty Connect, which did not immediately respond to requests for comment, agreed to the settlements without admitting or denying any wrongdoing.
The Freedom Mortgage subsidiary accused of providing kickbacks, RoundPoint Mortgage Servicing, ceased operations in August 2022 and Freedom no longer has a traditional retail mortgage lending unit, regulators said.
“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,” CFPB Director Rohit Chopra said in a statement Thursday. “The CFPB will be vigilant in rooting out anti-competitive behavior that interferes with consumers’ ability to choose financial products and services.”
The consent order with Boca Raton, Florida-based Freedom Mortgage details ways marketing services agreements [MSAs] the lender entered into with real estate brokerages allegedly violated provisions of the Real Estate Settlement Procedures Act (RESPA) that prohibit kickbacks for business referrals.
RESPA allows mortgage lenders and real estate brokerages to share expenses when jointly marketing their services to consumers, as long as payments “are reasonably related to the value of services actually performed.” But the CFPB alleged that the MSAs Freedom entered into with real estate brokerages were primarily designed to facilitate $90,000 in monthly payments in exchange for referrals.
“Freedom’s payments made to the real estate brokerages through MSAs were both structured and implemented to generate mortgage referrals, rather than compensate the brokerages for any marketing services they actually performed,” the CFPB alleged.
CFPB investigators determined that Freedom also treated agents at multiple real estate brokerages to perks like free tickets to sporting events, food and drinks, and subscriptions to services that provide property reports, sales comparables, and foreclosure data.
All told, more than 2,000 agents allegedly accepted free subscription services, providing more than 1,000 referrals to Freedom in return, the CFPB said. In some cases, Freedom required real estate agents and brokers to pair up with one of the company’s loan officers to receive the free subscription services, which were valued at about $300 a month.
“While some of the marketing services that the real estate brokers were supposed to perform under the MSAs were directed to consumers, some of the MSAs also required the real estate broker to promote Freedom to the broker’s own agents,” the consent order stated. “For example, certain agreements required the brokerage to ‘conduct E-mail marketing campaigns’ and ‘conduct direct mail marketing campaigns’ directed at the broker’s agents, in addition to the home buying public.”
Freedom was also accused of plying real estate agents with food and alcohol at free events hosted by the company.
In its consent order with Realty Connect — a Suffolk County, New York-based real estate brokerage that employs about 420 agents — the bureau said Freedom picked up a $6,300 food and drink tab for 50 agents at a Long Island restaurant and bar in 2019.
“Freedom’s selected guest list included agents who were invited because they referred the most business to Freedom, and some newer agents that Freedom hoped would develop a referral relationship with their assigned Freedom loan officer,” the consent order said.
From July 2017 to 2022, about 100 Realty Connect real estate agents and brokers who accepted free access to subscription services made more than 400 mortgage referrals to Freedom, the bureau said.
Over five years, Freedom paid Realty Connect $6,000 per month to participate in the MSA, or a total of $432,000, the consent order said. Realty Connect’s MSA required the company to promote Freedom to consumers by sending 15,000 marketing emails and creating 75 property websites each month, and maintaining three video loop or kiosk locations.
But Realty Connect provided none of those services on Freedom’s behalf, the CFPB alleged.
“Although Realty Connect did some joint marketing with Freedom, Freedom performed most of the actual marketing services,” the CFPB found.
At an office in Melville, New York, Freedom owned and operated a print shop and employed a professional design team to create co-branded marketing material like mailers and open house flyers, the consent order said.
“The $6,000 monthly payments that Realty Connect accepted under the MSA bore no reasonable relationship to the net market value of any marketing services Realty Connect performed or provided to Freedom,” regulators said. “Realty Connect accepted monthly MSA payments from Freedom as part of a pattern, practice, or course of conduct to create, maintain, and strengthen mortgage referral relationships, in violation of RESPA.”
Get Inman’s Mortgage Brief Newsletter delivered right to your inbox. A weekly roundup of all the biggest news in the world of mortgages and closings delivered every Wednesday. Click here to subscribe.