Regulators fine mortgage lender for illegal payments

Federal regulators are fining a Connecticut mortgage provider for violating lending rules in a scheme that they said could drive up costs for homeowners.

The Consumer Financial Protection Bureau (CFPB) on Monday announced the decision to fine 1st Alliance Lending for illegally splitting real estate settlement fees with a third party that was not involved in the lending process.

The $83,000 fine amounts to what the CFPB implies is a slap on the wrist, because 1st Alliance notified the agency of the violations and was compliant throughout the process.

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"These types of illegal payments can harm consumers by driving up the costs of mortgage settlements," CFPB Director Richard Cordray said in a statement. "The bureau will use its enforcement authority to ensure that these types of practices are halted. We will, however, also continue to take into account the self-reporting and cooperation of companies in determining how to resolve such matters."

1st Alliance, based in Hartford, Conn., buys troubled mortgages from lenders, and then offers the owners of those home new loans with less expensive monthly payments, but a longer repayment period.

In 2010, 1st Alliance began financing these loans through a third-party hedge fund, and both companies split the revenues and fees. This practice was legal.

But in 2011, 1st Alliance found a new financing partner and stopped working with the hedge fund and its affiliates. However, 1st Alliance continued to split the payments for 83 loans over the next year.

Paying those unearned fees violated lending rules, the agency said.

1st Alliance reported the violations in 2013.