WASHINGTON—The Consumer Financial Protection Bureau has announced a series of actions against mortgage lenders it alleges are victimizing military veterans. The agency is reporting it has now taken action against six companies it said have been illegally marketing VA-guaranteed mortgages.
The most recent action taken has been against Service 1st Mortgage, Inc., a mortgage broker based in Glen Burnie, Maryland that is licensed in about 12 states. Service 1st offers and provides mortgage loans guaranteed by the United States Department of Veterans Affairs (VA). Service 1st's principal means of advertising VA-guaranteed loans is through direct-mail advertisements sent primarily to United States military servicemembers and veterans.
The Bureau said it found that 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 requires Service 1st to pay a civil money penalty and imposes requirements to prevent future violations.
“Today’s action is the sixth case stemming from a Bureau sweep of investigations of multiple mortgage companies that use deceptive mailers to advertise VA-guaranteed mortgages,” the Bureau said in a statement. “The Bureau commenced this sweep in response to concerns about potentially unlawful advertising in the market that the VA identified. This ongoing sweep of investigations reflects the Bureau’s commitment to enforcing the laws that ensure the financial marketplace is fair and accurate for all consumers, including servicemembers, veterans, and surviving spouses whom VA-guaranteed mortgages are designed to benefit.”
False & Misleading
The Bureau said it had 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,” the CFPB said. “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.”
Civil Penalty Assessed
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, the Bureau further alleged.
The consent order against Service 1st requires it to pay a civil penalty of $230,000. The consent order also imposes injunctive relief to prevent future violations, including requiring Service 1st to bolster its compliance functions by: (1) designating an advertising compliance official who must review its mortgage advertisements for compliance with mortgage advertising laws prior to the dissemination of the advertisements; (2) prohibiting misrepresentations similar to those the Bureau found it has made; and (3) requiring it to comply with certain enhanced disclosure requirements to prevent future misrepresentations.
Action Against Hypotec
Separately, the Bureau has also taken action against Hypotec, Inc., a mortgage broker based in Miami that is licensed in eight states. Hypotec also offers and provides mortgage loans guaranteed by the United States Department of Veterans Affairs (VA).
Hypotec advertises its VA-guaranteed loans to United States military servicemembers and veterans through direct-mail advertisements. The Bureau found that in advertising VA-guaranteed mortgages Hypotec 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 Bureau stated.
The consent order requires Hypotec to pay a civil money penalty and imposes requirements to prevent future violations.
The Bureau said it 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,” the agency stated.
Disclosures Not Made
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. Its advertisements also falsely stated: “the Economic Stimulus Program will end soon. There is currently no plan to extend the Stimulus Program.” Finally, many Hypotec advertisements included claims or terms that require additional disclosures, but Hypotec failed to make these disclosures, the Bureau explained.
The consent order against Hypotec requires Hypotec to pay a civil penalty of $50,000. The consent order also imposes injunctive relief to prevent future violations, including requiring Hypotec to bolster its compliance functions by designating an advertising compliance official who must review its mortgage advertisements for compliance with mortgage advertising laws prior to their use; prohibiting misrepresentations similar to those identified by the Bureau; and requiring Hypotec to comply with certain enhanced disclosure requirements to prevent future misrepresentations.
The consent order against Hypotec can be found here.