RESPA Lawyer BlogMarx Sterbcow will be presenting on Thursday, December 7, 2023, at The 33rd Annual Robert C. Sneed Texas Land Title Insitute Conference in San Antonio, Texas at the Hyatt Regency Hill Country. The session at the Texas Land Title Association‘s annual event will discuss the Real Estate Settlement Procedures Act “RESPA” and affiliated business arrangements.
Articles Posted in Regulation X
FDIC Consumer Compliance Supervisory Highlights Identified RESPA Section 8(a) Violations in its March 2023 Newsletter
The FDIC examiners identified significant consumer compliance issues during its supervisory activities in 2022 according to its March 2023 issue. The Spring 2021 issue of the Consumer Compliance Supervisory Highlights discussed Real Estate Settlement Procedures Act “RESPA” Section 8(a) violations and the difference between paying for a lead (which is generally acceptable) and paying for a referral (which is prohibited). True leads permissible under RESPA are often lists of customer contacts that are not conditioned on the number of closed transactions resulting from the leads, or any other consideration, such as endorsement of the settlement service. While a service may be characterized as a lead generation service, the activity could actually be a referral arrangement depending on the facts and circumstances. If the payment for the lead is in exchange for activity directed to a person that has the effect of affirmatively influencing the consumer to select a particular lender, then it becomes a referral fee. Banks often contract with third parties to provide what are characterized as lead generation services, but in some cases, the FDIC has found that the banks are actually paying for referrals. While the FDIC Supervisory Highlights demonstrate what banking regulators are looking at, it provides a good roadmap for other settlement service providers who are engaging in these types of marketing efforts.
Findings
In 2022, the FDIC identified RESPA Section 8(a) violations where a bank contracted with third parties that took steps to identify and contact consumers in order to directly steer and affirmatively influence the consumer’s selection of the bank as the settlement service provider. In some cases, this process involved the third party calling identified consumers and directly connecting and introducing them to a specific mortgage representative on the phone. This process is often referred to as a “warm transfer.” In other cases, the process involved operation of a digital platform that purported to rank lender options based on neutral criteria but where the participating lenders merely rotated in the top spot. Although each case is fact specific, indicators of risk in these arrangements include a third party that does one or more of the following activities:
Marx Sterbcow Speaking at the Southeast Land Title Association’s 55th Annual Mid-Year Conference
Marx Sterbcow, Managing Attorney of the Sterbcow Law Group, is speaking at the Southeast Land Title Association‘s Mid-Year Conference in Birmingham, Alabama on Monday, April 24th at the Ross Bridge Resort & Spa. Mr. Sterbcow will speak on CFPB and RESPA compliance matters including an in-depth discussion on how to properly set up and operate Affiliated Business Arrangements so you comply with federal and state RESPA regulations.
Consumer Financial Protection Bureau issues Compliance Aid on RESPA Section 8: Marketing Service Agreements (MSAs)
Today, the Consumer Financial Protection Bureau (CFPB) announced it has rescinded the highly controversial Compliance Bulletin 2015-05, “RESPA Compliance And Marketing Services Agreements” and issued new the Real Estate Settlement Procedures Act (RESPA) guidance on Section 8 on the topics of “Gifts and Promotional Activities” and “Marketing Services Agreements“. The rescission of Compliance Bulletin 2015-05 clears up the widespread confusion that former CFPB Director Richard Cordray created when he issued the MSA bulletin. The CFPB’s Brian Schneider wrote the “CFPB provides clearer rules of the road for RESPA marketing service agreements” on the Bureau’s blog “[I]n order to provide clearer rules of the road and promote a culture of compliance, the Bureau is publishing guidance in the form of Frequently Asked Questions (FAQs) on the RESPA Section 8 topics. The FAQs provide an overview of certain provisions of RESPA Section 8 and respective Regulation X sections, and addresses the application of certain provisions to common scenarios described in Bureau inquiries involving gifts and promotional activities, and marketing services agreements (MSAs).”
Schneider wrote “the Bureau determined that Compliance Bulletin 2015-05, Compliance and Marketing Services Agreements, does not provide the regulatory clarity needed on how to comply with RESPA and Regulation X and therefore is rescinding it. The Bureau’s rescission of the Bulletin does not mean that MSAs are per se or presumptively legal. Whether a particular MSA violates RESPA Section 8 will depend on specific facts and circumstances, including the details of how the MSA is structured and implemented. MSAs remain subject to scrutiny, and we remain committed to vigorous enforcement of RESPA Section 8.”
One of the biggest takeaways in the MSA guidance is in the Bureau’s use of a real estate agent entering into a MSA agreement with a lender. In the past MSAs where lenders entered into MSAs with individual real estate agents or real estate teams was considered off limits due to the direct consumer interaction that real estate agents and real estate agent teams had so MSAs were largely limited to real estate brokerages since this was seen as a business to business arrangement due to the brokerages limited interaction with consumers.
FDIC RESPA Enforcement Action: HomeStreet Bank accused of violating Section 8
The Federal Deposit Insurance Corporation “FDIC” on November 30, 2019 entered into a Consent Order FDIC-18-0142k which ordered HomeStreet Bank, a Seattle, Washington based bank to pay a civil money penalty of $1.35 million dollars. The FDIC alleged that HomeStreet Bank’s now discontinued Home Loan Center-based mortgage banking business line violated Real Estate Settlement Procedures Act, 12 U.S.C. § 2607, and its implementing regulation, Regulation X, 12 C.F.R. Part 1024, by entering into certain co-marketing agreements using online platforms and desk rental agreements which resulted in the payment of fees to real estate brokers and home builders for their referrals of mortgage loan business. The FDIC also stated that all of HomeStreet Bank’s agreements with those real estate brokers and home builders have been terminated.
The FDIC’s Consent Order stated that HomeStreet Bank entered into the settlement without admitting or denying any charges of unsafe or unsound banking practices or violations of law or regulation.
Unfortunately though, the FDIC’s Consent Order did not provide any industry guidance on what it found objectionable in the co-marketing agreements using online platforms or the desk rental agreements. The Sterbcow Law Group hopes the FDIC will in the future provide more detail in its enforcement actions in order to help provide more clarity to the real estate and mortgage industry.