DBO Announces $10.1 Million Settlement with Sherman Oaks-Based Prospect Mortgage

Nov 19, 2015

National Agreement Gives CA 43% of Restitution, Penalties

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SACRAMENTO – The Department of Business Oversight (DBO) today announced Prospect Mortgage, LLC
will pay $10.1 million in borrower restitution and penalties under a national settlement that resolves
allegations the firm violated numerous federal and state laws.
“Prospect overcharged borrowers, failed to provide them proper disclosures and failed to maintain adequately
documented loan files,” said DBO Commissioner Jan Lynn Owen. “This settlement compensates wronged
consumers and helps ensure the violations don’t occur again.”
Under the settlement, Prospect will pay 70,353 borrowers across the country an estimated $2.8 million of
combined restitution. The firm – based in Sherman Oaks, California – will pay the states $7.4 million in
administrative penalties over the course of 2016. Of the restitution, an estimated $1.22 million will go to
30,453 California borrowers. The state will receive $3.1 million of the administrative penalties.
DBO led a group of eight states that performed the regulatory examination of Prospect’s records that
uncovered the violations. DBO also served as the states’ lead negotiator in the settlement talks.
The restitution compensates eligible borrowers for a $202.50 settlement service fee collected by Prospect
from Sept. 30, 2009 through Jan. 21, 2014. Prospect told borrowers the fee covered settlement services
provided by C2C Appraisal Services, LLC. But Prospect failed to disclose, as required, that C2C was an
affiliate of Prospect’s. The examination of loan files also revealed that some of the settlement services
actually were performed by Prospect employees. Additionally, the $202.50 fee exceeded the actual cost of
the services by an average of $37.50.
Under the settlement, restitution for each borrower charged the excessive fee will average $40, plus 10
percent annual interest from the date the fee was collected.
Other violations covered by the settlement include: missing or deficient disclosures; premature credit card
charges for appraisal services; inadequate employee screening procedures; record retention deficiencies; and
others. To prevent future such violations, the settlement requires Prospect to revise its policies and
procedures, and train management, mortgage loan originators and support staff.
At the end of the first quarter of 2014 – the final quarter in which the C2C settlement service fee was
collected – Prospect serviced 26,133 California mortgages with a combined unpaid principal of $7.59 billion.
At the end of the second quarter of this year, those numbers were down to 16,339 loans and $4.83 billion of
unpaid principal.