Section 8 of the Real Estate Settlement Procedures Act (RESPA) prohibits unearned fees and kickbacks. Prior to July 2011, the Department of Housing and Urban Development (HUD) had primary responsibility for enforcement of RESPA. HUD was a very active enforcer of Section 8 violations.
The Consumer Financial Protection Bureau (CFPB) assumed control of RESPA, including Section 8, in July 2011. Until recently, CFPB had not been active in Section 8 enforcement. Starting in 2013, however, the CFPB shifted gears, and has become a very active but unpredictable enforcer. In recent years, nearly 35% of all reported CFPB mortgage-related enforcement actions were focused on Section 8, and the total penalties imposed has reached huge totals.
The enforcement actions under the CFPB, while fewer in number over the years, have been jaw dropping in dollar amounts. The settlements of these actions range from a few thousand dollars to many millions of dollars. Failure to comply with Section 8 can lead to jail terms, in addition to the penalties.
On November 6, the Federal Deposit Insurance Corporation (FDIC) announced a settlement with Home Street Bank, Seattle, Washington, for violations of Section 8(a) of RESPA. HomeStreet stipulated to the issuance of an Order to pay civil monetary penalties ("Order") in the amount of $1,350,000.
The FDIC determined that HomeStreet Bank, through its now discontinued Home Loan Center-based mortgage banking business line, entered into co-marketing arrangements in which the bank and real estate brokers agreed to market their services together using online platforms. The FDIC also determined that the bank entered into desk rental agreements under which the bank rented space in the offices of real estate brokers and home builders. These arrangements and agreements resulted in the payment of fees by the bank to real estate brokers and home builders for their referrals of mortgage loan business, in violation of RESPA.
While co-marketing arrangements and desk rental agreements are permissible where the fees paid bear a reasonable relationship to the fair market value of marketing or rental costs, such arrangements and agreements violate RESPA when the amounts paid exceed fair market value and the excess is for referrals of mortgage business.
The CFPB has provided minimal guidance on Section 8, and that guidance is less than enlightening. Most of the CFPB guidance has been in the form of consent decrees. CFPB consent decrees typically include significant penalties, well past $20 million in one case. The approach, high-dollar enforcement activities, personal liability for management, and a lack of regulatory guidance, has created an atmosphere of intimidation and fear in the industry.
Every financial institution has violations of Section 8. How serious are your violations? You need to be aware of your violations and take steps to eliminate them.
This program reviews the RESPA/Regulation X rules that prohibit unearned fees and kickbacks and many of the recent consent decrees brokered by the CFPB. Participants receive a detailed manual that serves as a handbook long after the program is completed.
Upon completion of the program participants understand:
- What transactions are covered by RESPA's prohibition against unearned fees and kickbacks;
- What actions are prohibited;
- What constitutes a referral fee, or an unearned fee or kickback;
- What compensation is permissible;
- What constitutes an affiliated business arrangement and the rules that apply to such arrangements;
- How to properly handle broker arrangements; and
- Recent CFPB consent decrees related to Section 8, including a case from October 2019 and one case where the CFPB didn’t come out the winner in the end.
Questions and Answers
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