Taking out an expensive loan is often the only option when it comes to financing a new home. And while most prospective home buyers might expect their mortgage lender to find them the best deal, that isn’t always the case. Take for example a California-based mortgage lender being ordered to provide $730,000 in consumer redress for an illegal compensation system that offered bonuses to employees for steering borrowers into higher interest loans.
The Consumer Financial Protection Bureau announced this week that Franklin Loan Corporation operated an illegal compensation fund for more than two years affecting the loans of nearly 1,400 consumers.
According to the CFPB, from June 2011 to October 2013 the residential mortgage lender paid at least $730,000 in quarterly bonuses to 32 loan officers based in part on the interest rates for the loans they provided to borrowers; the higher the interest rate, the larger the officer’s bonus would be.
The company’s bonus payments were found to be in violation of the Federal Reserve Board’s Loan Origination Compensation Rule, which prohibits mortgage lenders from paying loan officers based on loan terms such as interest rates.
Officials with the CFPB say that the consent order against the company will ensure that all affected borrowers are repaid and that no more consumer are harmed by the illegal compensation system.
CFPB Takes Action Against Franklin Loan Corporation for Steering Consumers into Costlier Mortgages [CFPB]
by Ashlee Kieler via Consumerist
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