NY DFS Obtains $604,000 in Restitution and $500,000 Civil Penalty From Lender Who Failed to Refund Lender Credits

​On August 10, 2017, the New York Department of Financial Services (DFS) announced that it had entered into a consent order with a Missouri-based lender that specializes in mortgage loans guaranteed by the United States Department of Veteran’s Affairs.  According to the consent order, the DFS determined that, between 2011 and 2014, the lender failed to refund a surplus “lender credit” to at least 322 New York borrowers.  These borrowers obtained a “lender credit” from the lender to cover estimated closing costs in exchange for agreeing to pay a higher interest rate.  When the borrowers’ final closing costs were lower than the estimated costs (resulting in a surplus lender credit), the lender failed to make a downward adjustment of the interest rate, reduce the principal balance of the loan, reduce the down payment, provide a cash refund, or refund the surplus to the borrower in any other way.  The lender also failed to preserve the rate sheets for borrowers who had purchased lender credits.  Since 2014, on its own initiative, the lender has returned surplus lender credits to borrowers.

After its examination, DFS found that the lender’s conduct violated Regulation X of the Real Estate Settlement Procedures Act and New York state banking law.  The lender agreed to cease its unlawful practices and retain rate sheets for each individual loan made to a New York borrower.  The lender also agreed to refund all borrowers for whom the surplus lender credit was not returned, and to provide $290.79 to each New York borrower who obtained a loan from the lender between 2010 and 2014 for whom the lender is unable to determine whether surplus lender credit was retained due to its record keeping.  Finally, the lender agreed to pay a civil penalty of $500,000.