Mortgage lender PHH Corp. on Friday received a stay of the Consumer Financial Protection Bureau’s $109.2 million judgment for alleged violations of the Real Estate Settlement Procedures Act (RESPA). A Washington, D.C. district court ruled in favor of the stay.

PHH was stunned in June when the CFPB issued the enforcement action. PHH was accused of jacking up consumers’ closing costs by demanding that mortgage insurers buy reinsurance from PHH’s in-house reinsurance company. The CFPB claimed PHH violated RESPA when it participated in the “mortgage insurance kickback scheme” for more than a decade through its mortgage origination and reinsurance subsidiaries.

CFPB Director Richard Cordray ruled that the re-insurance deals are effectively kickbacks to New Jersey-based PHH. The fine accounted for each time PHH received a kickback on or before July 21, 2008. PHH’s residential mortgage origination subsidiaries, PHH Mortgage Corp. and PHH Home Loans LLC and PHH’s wholly-owned subsidiaries, Atrium Insurance Corp. and Atrium Reinsurance Corp., also were included in the CFPB’s action.

The fine was $103 million more than the $6 million disgorgement recommended by Administrative Law Judge Cameron Elliot, who limited PHH’s alleged violations to kickbacks connected with loans that closed on or after July 21, 2008. The CFPB first initiated an administrative proceeding against PHH in January 2014.

PHH argued that complying with the CFPB order would violate its due process rights and harm the business irreparably. 

"The balance of hardships and the public interest heavily favor a stay," PHH told the court in its motion for stay. "There is no public interest in enforcing an order that violates the fundamental right to fair notice or injunctive provisions that are plainly unlawful."

PHH’s lawyers at Gibson Dunn & Crutcher had asked the court to stay the CFPB’s final decision while the mortgage lender appeals. A three-judge panel granted the motion.

That grant could prove to be a troubling development for the CFPB. Beyond simply challenging the CFPB's interpretation and application of RESPA, PHH also claims the CFPB is unconstitutional. Specifically, the mortgage company argues that because Cordray has the sole authority to issue final decisions, the CFPB’s structure violates separation-of-powers doctrine.

"Never before has so much authority been consolidated in the hands of one individual shielded from the President’s control and Congress’s power of the purse,” the stay motion stated. 

Mortgage insurance is typically required on loans when homeowners borrow more than 80 percent of the value of their home. It protects the lender against the risk of default. Generally, the lender, not the borrower, selects the mortgage insurer. The borrower pays the insurance premium every month in addition to the mortgage payment. While mortgage insurance can help borrowers get a loan when they cannot make a 20 percent down payment, it also adds to the cost of monthly payments for borrowers who have little equity in their homes.

Mortgage insurance can be harmful when illegal kickbacks inflate its cost. Increasing the burden on borrowers who already have little equity increases the risk that they will default on their mortgages. RESPA protects consumers by banning kickbacks that tend to unnecessarily increase the cost of mortgage settlement services. RESPA also helps promote a level playing field by ensuring companies compete for business on fair and transparent terms.

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