Prospect Mortgage Announces Settlement with HUD

On the heels of HUD’s recent settlement with Fidelity came news that another California company has reached an agreement with HUD regarding RESPA violations.The Sherman Oaks-based company will pay HUD $3.1 million to settle claims of kickbacks to mortgage professionals from the company’s alleged “sham joint ventures.”

It seems clear that HUD is flexing its muscle in its last week as the enforcement arm of RESPA before they turn over that duty to the Consumer Financial Protection Bureau (CFPB).

According to the HUD press release:

Prospect operated as a “series limited liability company,” a business structure unauthorized by FHA, and that Prospect used this business structure to create hundreds of sham joint ventures with real estate brokers, mortgage brokers, mortgage lenders, servicers and other settlement service providers and to share profits for the referral of real estate settlement services. Through these affiliated business arrangements, Prospect allowed non-approved branch offices to originate FHA-insured mortgages in violation of FHA’s guidelines.

“The real test for any bona fide affiliate business arrangement is whether the affiliate has sufficient capital and employees to stand on its own two feet,” said Acting FHA Commissioner Carol Galante. “In this case, it was clear that these sham companies had neither and were merely sharing profits for the referral of business.”

Prospect Mortgage denied the allegations based on the fact that they had disclosed the business set-up with HUD in a previous audit and that HUD had not expressed to them any concerns about any RESPA violations. As part of the agreement, Prospect Mortgage has agreed to dissolve these companies.

Read the full text of the agreement here.