Introduction

David Murdock, owner of Castle & Cooke Mortgage LLC, in a 2006 file photo. (Ross Taylor/AP)

As the financial overhaul known as the Dodd-Frank Act turns three this week, the law’s most controversial creation, the Consumer Financial Protection Bureau, is for the first time cracking down on mortgage lenders for encouraging loan officers to put borrowers in high-cost loans.

The agency filed a federal lawsuit Tuesday against Castle & Cooke Mortgage LLC and its president, an accomplished rodeo performer who professes to be “a big fan” of new rules aimed at helping consumers.

It’s the first time the new consumer cop — a creation of Dodd-Frank that drew sharp opposition from the financial industry — has taken action against the practice, which was pervasive in the years leading up to the housing meltdown and then banned under Dodd-Frank.

Castle & Cooke, based in Utah, is a privately held, non-bank lender of the sort that largely escaped the federal government’s scrutiny before the financial crisis focused attention on abusive lending. Its president, Matthew Pineda, founded it in 2005 for eccentric fruit billionaire David Murdock. (Murdock owns Castle & Cooke, Dole Food Company Inc. and collections of “animals, orchids, Chippendale mirrors and Czechoslovakian chandeliers.” He is the 190th-richest person in America on the latest Forbes list.)

By 2012, Castle & Cooke Mortgage had grown to lend $1.3 billion through about 45 branches in 22 states. The company knows “what people are looking for in today’s cluttered and confusing mortgage market,” and “it is not merely a matter of finding a team of people who can find a better rate,” a corporate website says.

The consumer bureau says Castle & Cooke Pineda, and senior vice president Buck Hawkins, violated a ban on paying loan officers more when they sell loans with higher interest rates and fees. Before the ban, it says, the company paid employees kickbacks for pushing higher-rate mortgages – “the higher the interest rates, the higher the loan officers’ commissions.” When the ban took effect, the suit alleges, Pineda and Hawkins devised a workaround: They lumped the incentives into quarterly bonuses – “the higher the interest rates of the loans closed by a loan officer in the quarter, the higher the loan officer’s quarterly bonus,” according to the complaint.

The company said in an emailed statement it has cooperated with the investigation for more than a year “and anticipates an amicable resolution.” Pineda told The American Banker, “We don’t compensate loan officers based on the terms of a loan and we are not motivated to upsell.”

In a promotional video posted on Youtube last month, Pineda comes out as “a big fan” of new consumer protections, but says the changes have made it “a hard time” in the mortgage industry.

“It’s been definitely challenging to overcome some of the regulation that’s really always been there but never been enforced,” he says.

Indeed, although the bonuses are seen as a key “pro” of working for Castle & Cooke, they’re not the company’s only tool for motivating sellers. Employees compete for membership in the “Chairman’s Club” and “Jetsetter’s Club,” an honor bestowed on “top overall performers for their efforts to drive business in a number of areas that focus on production,” according to the company’s website.

Club members enjoy an “exclusive trip” to Lanai, the Hawaiian island that Murdock last year sold to Oracle Corp. founder (and fellow billionaire) Larry Ellison, reportedly for a half-billion dollars. Jetsetters get there on Murdock’s private jet.

A video from the 2011 retreat at the Four Seasons features couples wearing matching Hawaiian togs and kissing awkwardly in front of ocean vistas; Pineda giving a double-thumbs up; and an opulent awards dinner where Murdock, clad in a in white jacket, white shirt and gold tie, poses with each winner and his or her cut-glass award.

Before the financial crisis, loan officers typically got paid extra for selling mortgages with higher rates and fees. That encouraged them to steer borrowers toward mortgages with higher monthly payments. The risky, costly mortgages contributed a wave of foreclosures that sparked the global credit freeze and upended the U.S. economy.

The Dodd-Frank Act, passed in the aftermath of that crisis, created the consumer bureau to police unfair and abusive practices by consumer finance companies, including banned incentives for loan officers.

It’s not the first time Murdock has prospered in the aftermath of a real estate bubble. He started his career as a builder in the post-war housing boom in Phoenix, according to a Castle & Cooke website, and left for California “when the Arizona real estate market collapsed in the sixties.” He soon owned real estate, mining, oil and cattle companies.