Mortgage lender accused of paying illegal bonuses for costlier loans

WASHINGTON -- The Consumer Financial Protection Bureau on Tuesday sued Castle & Cooke Mortgage, accusing it of paying illegal bonuses to employees who steered home buyers toward higher-interest loans.

The suit marks the first time a company has been targeted under new federal loan-origination compensation rules adopted after a mountain of bad home loans set off a global financial crisis.

The bureau sued in federal court in Utah, where Castle & Cooke is based, accusing two of its top executives of running a quarterly bonus program that paid $6,100 to $8,700 to loan officers who persuaded consumers to take out pricier mortgages.

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Those mortgages brought the company higher profits. Loan officers who did not push customers into higher-interest loans did not receive bonuses, the bureau said.

A spokeswoman for Castle & Cooke did not immediately respond to a request for comment.

More than 1,100 such bonuses were paid beginning in April 2011, when the new rules went into effect, and tens of thousands of consumers could have been effected, the bureau said.

“Consumers should be able to get a mortgage without worrying about how the financial incentives of their loan officers may cause them to pay higher rates than they actually qualify for,” said Richard Cordray, the bureau's director.

He said such bonuses were among the practices that triggered the 2008 financial crisis.

In 2010, the Federal Reserve banned lenders from paying bonuses to brokers and loan officers based on the interest rate or other loan terms. 

The consumer bureau, which was created by a 2010 financial reform law, took over enforcement of the rules.

Castle & Cooke has 45 branches in 22 states, including California. The company originated about $1.3 billion in mortgages last year, the bureau said.

The privately held company is owned by billionaire David H. Murdock, chairman and chief executive of Dole Food Co.

The bureau complaint accused Castle & Cooke President Matthew A. Pineda and the company's senior vice president of capital markets, Buck L. Hawkins, of calculating and authorizing the bonuses.

The bureau is seeking an end to the bonuses, unspecified restitution for consumers and civil penalties of up to $5,000 for each violation and up to $1 million for each knowing violation.

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