Today, the Consumer Financial Protection Bureau (CFPB) took action against Freedom Mortgage Corporation (Freedom) for kickbacks to real estate brokers and agents in exchange for mortgage loan referrals. The Florida-based mortgage company must pay a $1.75 million fine.
The CFPB said Freedom provided real estate agents and brokers with numerous incentives — including cash payments, paid subscription services, and catered parties — with the understanding they would refer prospective homebuyers to Freedom for mortgage loans. According to Modex, in the last 12 months, Freedom had a volume of $3.65 billion from 13,631 units.
Freedom entered into marketing services agreements with over 40 real estate brokerages, where Freedom made monthly payments totaling approximately $90,000 to brokerages in exchange for the brokerages’ marketing services. However, Freedom used these marketing services agreements to pay for mortgage referrals rather than compensate the brokerages for marketing services they performed. Realty Connect received $6,000 per month from Freedom but failed to perform many of the marketing tasks required under the agreement.
The CFPB said Freedom also gave real estate brokers and agents free access to valuable industry subscription services, which provided information concerning property reports, comparable sales, and foreclosure data. Freedom paid thousands of dollars per month for one of the subscription services, and Freedom provided access to over 2,000 agents for no cost.
Freedom often required real estate agents and brokers to agree to be paired with a Freedom loan officer before Freedom would give them access to its subscription services. Since 2017, the real estate agents who received free access to these subscription services—including agents at both Realty Connect and other brokerages—made more than 1,000 mortgage referrals to Freedom.
Also, Freedom hosted parties and other events for real estate agents and brokers, including events held exclusively for Realty Connect brokers and agents. Freedom paid for the food, beverages, alcohol, and entertainment. Freedom would also sometimes give free tickets to sporting events, charity galas, or other events where the agents and brokers would have otherwise needed to pay their own way. Freedom also denied requests for event sponsorship from real estate brokerages that did not refer mortgage business to Freedom’s loan officers.
David Luna, president of Mortgage Educators and Compliance, said a RESPA violation comes with a $10,000 fine per violation and one year of jail time. "Do you want to be spending a year with Bubba?" Luna told a room full of brokers Thursday.
Brokers continued to ask questions about what subscription services for real estate agents they could offer for free. Luna said they could charge the real estate agents, but when it comes to giving them something for free, "don't do it."
"It's not worth it," Luna said.
In August 2021, Freedom transferred its traditional retail mortgage unit to its wholly-owned subsidiary, RoundPoint Mortgage Servicing (RoundPoint). Freedom’s RoundPoint subsidiary ceased traditional retail operations on or around August 2022. Realty Connect is a privately held real estate brokerage firm based in Suffolk County, New York.
Freedom did not immediately return a message seeking comment on the action. Founded in 1990 and headquartered in Boca Raton, Florida, Freedom is an independent mortgage company that provides mortgage loans through retail, wholesale, and correspondent channels. One of the nation’s largest non-bank mortgage lenders/servicers, the company is licensed in all 50 states, the District of Columbia, Puerto Rico, and the U.S. Virgin Islands.
The CFPB separately issued an order against a real estate brokerage firm, Realty Connect USA Long Island (Realty Connect), for accepting numerous illegal kickbacks from Freedom. Realty Connect will pay a $200,000 penalty and cease its unlawful conduct. Company officials did not return a message seeking comment.
“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,” said CFPB Director Rohit Chopra. “The CFPB will be vigilant in rooting out anti-competitive behavior that interferes with consumers’ ability to choose financial products and services.”
Stanley Middleman, founder and CEO of Freedom Mortgage, bought a 16.25% ownership stake in the Philadelphia Phillies in June. The stake is worth approximately $455 million, according to Forbes. The Phillies have been appraised at a reported $2.8 billion for the purposes of this transaction.
In 2019, the CFPB reached a settlement with Freedom for violating HMDA and Regulation C by submitting mortgage-loan data for 2014 to 2017 that contained errors. The bureau found that Freedom reported inaccurate race, ethnicity, and sex information and that much of Freedom’s loan officers’ recording of this incorrect information was intentional. Freedom was required to pay $1.75 million in that case as well.
Christine Stuart contributed to this report.