CFPB Continues Crackdown On Deceptive VA Loans

CFPB Continues Crackdown On Deceptive VA Loans

September 1, 2020
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The crackdown continues on mortgage brokers originating VA loans with deceptive advertising practices. Today, the Consumer Financial Protection Bureau settled with two brokers, bringing the overall total to six in the last month-and-a-half.
 
The CFPB issued a consent order against Service 1st Mortgage, Inc., a mortgage broker based in Glen Burnie, Maryland that is licensed in about 12 states. The bureau also issued a consent order against Hypotec Inc., a mortgage broker based in Miami, Florida that is licensed in eight states. 
 
The bureau found that both brokers in advertising VA-guaranteed mortgages Service 1st sent consumers numerous mailers that contained false, misleading, and inaccurate statements or that lacked required disclosures, in violation of the Consumer Financial Protection Act’s (CFPA) prohibition against deceptive acts and practices, the Mortgage Acts and Practices – Advertising Rule (MAP Rule), and Regulation Z.
 
The consent order against Service 1st requires it to pay a civil penalty of $230,000. The consent order against Hypotec requires it to pay a civil penalty of $50,000. Both brokerages must bolster their compliance functions by designating an advertising compliance official who must review their mortgage advertisements for compliance with mortgage advertising laws prior to their use; prohibiting misrepresentations similar to those identified by the bureau; and requiring both to comply with certain enhanced disclosure requirements to prevent future misrepresentations.
 
Today’s action are the fifth and sixth cases stemming from a bureau sweep of investigations of multiple mortgage companies that use deceptive mailers to advertise VA-guaranteed mortgages. The CFPB commenced this sweep in response to concerns about potentially unlawful advertising in the market that the VA identified.
 
The bureau found that, since December 2015, Service 1st disseminated advertisements that contained false, misleading, and inaccurate statements or that failed to include required disclosures. For example, Service 1st advertised specific credit terms, such as APRs and hypothetical payment amounts that it was not prepared to offer, or that it could only offer for an introductory period but advertised as if they were permanent loan terms.
 
Service 1st also used terms in millions of its advertisements that falsely represented or implied that Service 1st was affiliated with the government, including the VA, that the advertised product was endorsed, sponsored by, or affiliated with the United States government, or that the United States government was the source of the advertisements. In addition, in advertisements mailed between April 2016 and May 2017, Service 1st stated that it would pay an estimated escrow refund of a specific amount if the consumer refinanced through Service 1st, even though the advertised escrow refund amount was calculated using a method that would not yield an actual estimate for that consumer, and in cash-out transactions the “refund” was actually added to the principal of the consumer’s loan.
 
Service 1st also sent advertisements between December 2015 and April 2017 representing that a consumer could “[s]kip two payments” or “miss” two payments by refinancing with the company, but it did not disclose the limitations on this option, or that the skipped or missed payments would be added to the principal balance of the consumer’s loan. Its advertisements also stated: “the Economic Stimulus Program will end soon. There is currently no plan to extend the Stimulus Program,” which was untrue. Finally, many Service 1st advertisements included claims or terms that require additional disclosures, but Service 1st failed to make these disclosures.
 
The bureau found that, since 2016, Hypotec disseminated advertisements that contained false, misleading, and inaccurate statements or that failed to include required disclosures.  For example, Hypotec advertised specific credit terms, such as interest rates, APRs, and hypothetical payment amounts that it was not prepared to offer, or that it could only offer for an introductory period but advertised as if they were permanent loan terms. 
 
Hypotec’s advertisements also used phrasing and formatting that falsely represented or implied that Hypotec was affiliated with the government, including the VA, that the advertised product was endorsed, sponsored by, or affiliated with the United States government, or that the United States government was the source of the advertisements.  In addition, in advertisements mailed between June 2016 and January 2019, Hypotec stated that it would pay an estimated escrow refund of a specific amount if the consumer refinanced through Hypotec, even though the advertised escrow refund amount was calculated using a method that would not yield an actual estimate for that consumer, and customers were required to fund escrow accounts upon generating a new loan.
 
The consent order against Service 1st can be found here.  The consent order against Hypotec can be found here.
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