The Consumer Financial Protection Bureau is poised to dismiss its case against PHH Corp., a nonbank mortgage lender and servicer whose appeal of a $109 million penalty led to a four-year legal battle over whether the agency's single-director structure was constitutional.

The CFPB's enforcement director, Kristen Donoghue, and a team of CFPB attorneys filed a joint statement late Tuesday with PHH's lawyers recommending that acting Director Mick Mulvaney dismiss the case outright.

"Enforcement Counsel and Respondents have conferred, and have agreed to recommend dismissal of this administrative proceeding," the joint statement said. "Accordingly, Enforcement Counsel and Respondents respectfully request that the Acting Director proceed to dismiss this matter."

Acting CFPB Director Mick Mulvaney
Acting CFPB Director Mick Mulvaney is expected to drop the agency's case against nonbank mortgage lender PHH. Bloomberg News

PHH chose last month not to file a petition to appeal an earlier ruling on constitutional grounds to the Supreme Court.

Mulvaney had sent a list of questions on May 11 to both sides in the case, asking for recommendations on how to proceed, an unusual step that indicated he was laying the groundwork for a dismissal.

In the two-paragraph legal filing, Donoghue stated that Mulvaney's questions about the case "are now moot."

PHH, of Mount Laurel, N.J. , notched a huge victory in January when the U.S. Court of Appeals for the D.C. Circuit threw out a $109 million fine over allegations of alleged kickbacks, and remanded part of the case back to the CFPB.

But the appeals court also handed a major win to the consumer agency by ruling that the creation of the agency's single-director structure, through the Dodd-Frank Act, was constitutional.

Republicans have long claimed that the penalty imposed against PHH by former CFPB Director Richard Cordray was a sign of overreach given that an administrative law judge in late 2014 initially suggested a fine of $6 million.

For mortgage lenders who closely watched the legal drama, the constitutional issue played a back seat to the agency's interpretation of the Real Estate Settlement Procedures Act.

The appeals court ruled that Cordray had erred in fining PHH based on his own novel interpretation of Respa. The 1974 law sought to eliminate illegal kickbacks and referral fees by lenders, brokers and servicers of home loans.

A prior interpretation of Respa by the Department of Housing and Urban Development had found that payments for settlement services are allowed if they are of a reasonable value for the services provided.

Cordray broke from that interpretation and alleged that PHH had illegally accepted kickbacks, in the form of reinsurance premium payments, from mortgage insurers to which it had referred customers.

He threw out a suggested $6 million fine and also back-dated the penalties to 2008, settling on the $109 million figure.

The appeals court ruling in January found that the CFPB had violated due process by not providing PHH with notice of its new interpretation of Respa.

PHH has agreed to be sold to Ocwen Financial.