Billing Code 4210 - 27P
24 CFR Part 3500
[FR Organize number - 4450 - N - 01]
RIN 2502 - AH33
Real Estate Settlement Procedures Act (RESPA) Statement of Policy 1-1999
Payments to lenders about a mortgage broker
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Agency: Housing - Federal Housing Commissioner, Office of the Assistant Secretary for HUD.
ACTION: Statement of Policy 1999-1.
Summary: Statement of Policy, Procedure Act Settlement real estate, etc. ("RESPA") position of Housing and Urban Development on the legality of paying the lender a mortgage broker in connection with mortgage loans related to the federal government under the implementing regulations of HUD and Sets department. This statement is clearly a sector position on this issue a report of the Council's meeting on Appropriations Act 1999 HUD "while satisfying the directive given by the Federal Reserve Board report HUD / the HUD As with the difficulties and legal uncertainties under RESPA is still considered to be the most effective of its broad legislative reform along the lines of the Act on the industry and consumers (Thira) to resolve the truth of the loan How to. If adopted, the changes in statutory as is recommended in the report, to provide consumers with information and robust and better for the costs associated with trading of credit secured by the home, a clear By providing mortgage brokers with the rules and creditors, to resolve these issues would provide the most balanced approach. This approach is much more desirable action piecemeal is.
Effective Date: The Statement of Policy is effective when issued. Check out also loans for single moms .
, Call 202-708-4560, or (legal questions) Kenneth A. Markison, Assistant General Rebecca J. Holtz, Director of Office for 9146 RESPA / ILS, Department of Housing and Urban Development, Washington, DC 20410: For more information contact: Please. Call 202-708-3137 (toll-free, they are not), or Rodrigo Alba GSE / RESPA, RESPA, Room 9262 for a lawyer, Housing and Urban Development, Washington counsel for the department DC 20410. Individuals with hearing or speech disabilities 1-800-877-by calling the toll-free Federal Information Relay Service at 8339, you can access these numbers via TTY.
The statement of policy, this preamble contains a description of current industry practices. Check out also loan refund income tax . It is not intended to take a position with respect to the legality or illegality of the practice is not all. Such positions are described in the policy statement itself.
A. General Background
Department of Housing and Urban Development and Veterans Affairs Council, and independent agencies Appropriations Act, Report Year 1999 (HR conference. Rep. No. 769-105, five hundred of Congress., 2D SESS. 260 (1998)) (FY 1999 HUD budget Act), 21 HUD 10, 1998, directed to clarify its position on lender payments mortgage broker within 90 days after enactment of the FY 1999 HUD Appropriations Act. Congress did not intend to pay a mortgage lender or broker for the services and facilities, actual interior Settlement Procedures Act is in fact real estate reports [Article 8] () and run violation, or (b ) "has been explained (see below page 12 USC 2601.) (RESPA)]" (ibid.). The report also stated that the conferees "are concerned about the legal uncertainty continued absence, such as policy statements" and stated that "HUD is representative of the industry in this policy statement, the federal government consumer organizations, and other stakeholders to work with hope "(id. See Also loans in barstow, ca .).
The lenders pay mortgage brokers, and indirect costs, this problem has been proved particularly troublesome for both industry and consumers. It is (see additional discussion below), more than 150 cases nationwide have been the subject of litigation. To understand the position of the HUD payments and the legality of these issues, as well as mortgage brokers and their compensation, background information about the content of services provided by the applicable legal requirements under RESPA is required.
In the past seven years, HUD has conducted three rulemakings respecting mortgage broker fees. These rulemakings addressed the definition of problems and issues regarding disclosure of payments to mortgage brokers in transactions subject to RESPA first. See Also loan ipswich . (57 FR 49600 (November 02, 1992) Please refer to the. See Also loan less than an our .. 60 FR 47650 (September 13, 1995 on)) in the recent negotiations regulations (60 FR 54794 (October 25, 1995) 60 FR 63008 (8,1995 December) Please refer to), and the proposed rule (62 FR 53912 (October 16 1997)), HUD is the legality of payments to brokers under RESPA dealing with the problem. Check out also loan lenders cash in minutes . In the latter case, HUD is the broker of a mortgage, through binding agreement between the borrower and the role of trade, the conditions given a specific, including the disclosure of the total compensation that brokers mortgage lenders if they meet proposed payments to the legal presumption that. This rulemaking is pending.
In July 1998, the Board of the HUD and the Federal Reserve Board, delivered a joint report containing the truth and lending laws to Congress proposed legislation to reform RESPA. When this reform package adopted a proposal would be solved for a particular mortgage broker or any of the following requirements have been proposed disclosure and legal issues raised here, and consumers are an important new protection is provided.
Mortgage brokerage B.
RESPA was enacted in 1974 when, single-family mortgages, originating mainly savings and loans, commercial banks held by the bankers and mortgage. During the 1980s and 1990s, increased funding for the secondary mortgage market, to provide mortgage loans led to a new entity to compete with wholesale and retail financing entity of the traditional . It is working with borrowers in the future, possible loan origination retailers to collect information for the application has processed the data necessary to complete the mortgage transaction otherwise. These retail entity, operated with the intention to develop a common origination package, send it to the wholesale lender funds the loan immediately. Rise of technology, which allow more effective and faster exchange of information between lenders and financial and retail transaction originator.
Bring together borrowers and lenders entity to obtain a loan that provides services and retail mortgage originations, (usually without providing loan funds) are referred to as "General mortgage broker. "entities, these entities act as an intermediary between consumers and loan funding, the U. Check out also loan provider-payday loan .S. is estimated to begin in half of all mortgage loans made each year. Shall be maintained itself as a representative of the borrower to shop for a loan, shall provide a loan provided by other retailers simply lending: mortgage broker, fit into two broad general categories. Check out also loan savings account . The first type, the agency may have a relationship with the borrower, in some states, you can turn out to be responsible for the borrower in connection with agency representation. The second type, a representative of the borrowers, but mortgage brokers, loan can be made available to consumers from any number of sources of funding has signed a business relationship.
Mortgage brokers, loan counseling and participate in the closing of the borrower, order reports and documents required to fill out an application and such, offers a variety of services when processing a mortgage. See Also loan no teletrack direct lender . They also report, equipment, goods and facilities to carry out its function as office space, and may be provided. Mortgage broker, the level of services provided in a particular transaction depends on the level of difficulty involved in qualifying applicants for particular loan programs. For example, an applicant credit ratings are converted to various degrees of effort required to process the loan, employment status, level of debt, there is a difference or experience. In addition, mortgage brokers, you may be required to perform various levels of service under contract with another service or process wholesale lenders.
Mortgage broker, organizing, processing, and closing a mortgage in their different ways to collect compensation for their work. See Also loans in 60 seconds . In certain transactions, broker fees paid by lenders to provide financing and mortgage wholesaler, indirectly or through a combination of both, you may receive compensation directly from the borrower. See Also loan offices council bluffs iowa .
Broker, if you get paid directly from the borrower, the commission broker, perhaps (as a percentage of the loan amount, such as applications (eg, 1% of loan amount) as through direct costs, charged to the borrower prior to or at closing The fees, document preparation fees, processing fees, etc.).
Brokers also may receive indirect compensation from lenders and wholesalers. These indirect costs, servicing release premiums "or ,""," pay back the money" can be called a yield spread premium. "Mortgage broker to be paid to these indirect costs and may be based on the interest rate of each loan and the borrower entered into by the broker. These fees are very competitive, which is the subject of litigation. In addition, another method of indirect compensation, the subject of significant controversy and uncertainty, "a volume-based" compensation is. Mortgage Brokers This is generally based on the amount of the loan period to provide the lender, mortgage broker lender involves a reward. The compensation may come in the form of: (1) based on the amount of the loan, the cash payment to the broker, the broker, the "threshold" or "floor amount" provided to the lender beyond the or (2) is lower than for the financing of such provisions of the "rate start" (often referred to as the discount), "starting speed" corrected the results of the broker from the difference in yield between the interest rates and lending. Volume-based compensation, certain loans may be received or settlement after successfully finished.
Payments from lenders to brokers characterized as yield spread premiums are, as a particular loan (eg interest rate loans compared with Par entered into a mortgage broker provides the lender for the loan of 8 based on points. 7.50% and Par percent) no points will be ordered to higher premiums than the broker and mortgage rate 7.75% per point no. When determining the price of loans, mortgage broker, interest rate quotes issued by lenders sometimes relies on several times a day. Lenders and agrees to purchase the loan from the broker, the broker receives the appropriate pricing of the loan then the loan based on the difference in interest rates and borrower entered into by the rate reflected in the estimates. In some cases, the broker is based on other factors reduce the rate of par or market changes, and then by arranging loans to consumers at a particular speed can increase their income, he or increase her fee. Some consumers, this compensation system and / or the borrower claims that broker compensation plans for the outcome of higher interest rates for loans that are illegal under RESPA.
The lenders pay mortgage brokers can be reduced up-front costs to consumers. Check out also loan low fee . This can get a loan without paying a direct cost to consumers themselves. Not be compensated directly by the consumer through a broker fee if they are compensated directly or partial fee, interest on the loan, the fee increase and to compensate the broker will be added to the principal. In one of the methods described compensation cost for all whether directly through the phone and finally, through the interest rate will be paid by the consumer.
C. Coverage of this policy statement
24 CFR Part 3500 (X regulation) rules of RESPA the HUD found leads to lenders and borrowers together to get a mortgage loan related to the federal government "people (in general agent of the lender and the employees do not) to Define a mortgage broker., and who renders settlement services ... `" "(24 CFR 3500.2 (B)). in a table funding mortgage broker may close to process your loan in the name . However, settlement, or about, they will transfer these loans lender lenders loan money to fund the progress at the same time. mortgage broker is acting as an intermediary in the transaction, the broker is also financing provide a service, loan funds are provided by the lender, the loan is closed in the name of the lender.
In other cases, the mortgage broker is also the possibility of using the line warehouses trust funds and their own to close the loan in his name, and sell the loan after settlement in the secondary market . In such transactions, the mortgage broker to act as a lender under HUD's RESPA rules effectively. Thus, the transfer of liability from the loan, and payments to funding these early American brokers 24 CFR 3500.5 (B) (7) exemptions found in the market,, and then it goes out of scope of under RESPA Other sources of financing and payment from the settlement of the following are exempt from disclosure requirements and restrictions Section 8. The HUD rule, in determining what constitutes a bona fide transfer in the secondary market, HUD, which stipulates that lenders consider the real interest rate and the actual source of funds of funds. See Also loan consolidation . (24 CFR 3500.5 (B) (7).)
This statement of policy because it focuses on the legality of paying the lender a mortgage broker in transactions subject to RESPA, the scope of this statement has been limited to payments to mortgage brokers in the transaction Brokers and financial tables The. Then, lenders mortgage brokers, to sell the loan after settlement payments to mortgage brokers and loan funds for the first time, this statement is beyond the scope of the exemption as exempt from RESPA under the secondary market.
D. RESPA and its legislative history
In the enactment of RESPA, Congress, illegal and unnecessarily inflated prices in the home buying process (reprinted in S. Professional 1974 USCCAN 6548. 93 No. 866 (1974)) to protect the public from American Home Purchase sought to. Check out also loan in houston tx . Section 2 of the Act provides the following.
"Large consumers nationwide a significant reform of real estate settlement process, unnecessarily high settlement charges caused by certain invalid term practices that are provided at a cost settlement process more timely information about the nature and To enable certain changes in residential real estate settlement process is that it brings in some parts of the country development is needed in order to ensure that it is protected from is the purpose of this Act.. .. -
In more effective advance disclosure to home buyers and sellers of settlement costs, [and]
(2) elimination of kickbacks or referral fees tend to increase the costs of certain settlement services unnecessarily . See Also loans for bankruptcy ...."
12 USC 2601.
Section 4 of RESPA, the () Commissioner "shall be itemized all the costs imposed on the seller in relation to any costs or settlement imposed on borrowers and clearly visible" uniform settlement statement ( 12 USC 2603 ()) must be created.
Section 5 of RESPA (c)(12 USC 2604 (c "borrower of the amount or range of bona fide estimate of the cost of certain settlement services that may occur related to the settlement established by the Commissioner," to provide you need)).
Section 8 of RESPA (a) are no fees, rebates, from giving to the other to accept the values based on the understanding that any person must be mentioned or any contract or business, all persons and all prohibits a person. ((), Please see 12 USC 2607.) Paragraph 8 (b) is, in any part, division, percentage of charge made or received payment for services rendered outside services actually performed or Who has, and they are prohibited from accepting anyone. (12 USC 2607 (b) load.) Section 8 of RESPA (c), however, section 8 is in fact nothing other payments to pay for goods or facilities for people and good salaries and remuneration is not intended to prohibit, or services actually performed interiors are available. (12 USC 2607 (C) (2).)
Under Section 19 of RESPA, HUD has established an exemption to issue rules as necessary to implement the law, has not been granted the authority to do such interpretations. Check out also loan with my prepaid rushcard . (12 USC 2618 ().)
Legislative history of RESPA does, HUD housing as defined by the subcommittee - refers to the hearings and subsequent reports of VA, "[had] settlement costs is a major deal if it is kept within reasonable bounds problem areas. "representatives (S.. 866,6547 from 93 in number.) identified a" major problem areas "in the real estate settlement process" [A] illogical and busive practices that are, without providing a real benefit to them of the increase in settlement costs to home buyers. "It was another major concern" [T] he payment services it is difficult its cost and lack of understanding of the settlement process allows you to function at maximum efficiency of free markets, lack of understanding about some of the most homebuyers. "
Legislative history, these absurd two ways that Congress intended RESPA notice that in order to prevent excessive settlement costs. Under Section 4, Congress "MAK [e] contains information about payment processing available to homebuyers and requir advance payment [E] prior disclosure of transaction fees." Frequently sought to Since they are not know the date (the person in S. 6548.866-93,.) Senate report, if not, shop around for settlement services, settlement and thereby their overall reduce the cost, which is prohibited from doing so homebuyers "not aware of the nature of expenses and settlement services provided by these services and explained to the settlement date."
Kickbacks, referral fees, commissions and other receivables - in Article 8 of the Congress that it "illegal practices" sought to eliminate what are called. See Also loans for police officers . To enact these prohibitions, the legislature "to be unreasonable or unnecessarily inflated cost to the American public does not buy houses." Intended to representatives (S.. In 6548 93-866. ) to describe the provisions of section 8, the Senate report, RESPA is "explaining that it is intended to prohibit all referral fee arrangements ... or payment is made, the value` Introduction to real estate settlement services provided by it is 'it. Check out also loans in houston tx .' Representatives (S.. In the 93 to 866,6551.)
Legislative history that "has been exceeding the reasonable value of goods or services provided are paid [T] range O, the excess  can be considered to eliminate kickbacks and referral fees section. Check out also loan for 60 days ." is added (representative S.. In the 93 to 866,6551.) Senate Report states that "in return for actual services performed or goods furnished in fact, a reasonable payment" (Id) were not intended to be prohibited. The "settlement services [T] hose company, and who, therefore, that there are no rows with the reasonable value of services received out of commission they make these payments and they provide take measures to guarantee. "with the proviso that (ibid.).
Origination of RESPA, processing, because they apply to mortgage financing and federal government, the department has consistently prohibited under Section 8 of RESPA is held to cover the activities of mortgage brokers has. This is 1984, the Court of Appeals Sixth Circuit in applying criminal law as Section 8, held that the mortgage does not extend to making a clear definition of settlement services, became an issue. (Graham Mortgage Corporation in the United States against., 740 F.2d 414 (sixth passage. 1984).) In 1992, Congress for the purposes of RESPA, settlement services, including origination and that, doubt Correct the RESPA mortgage support is removed. (Section 908 of the Housing and Community Development Act of 1992 (approved October 28, 550,1992 of Pub.L. 102... 104 Stat 4413) is at the same time, Congress is also ranked second in particular RESPA applies to the mortgage and refinancing. (ibid.).
E. HUD RESPA rule
Two days in November 1992 (57 FR 49600), and regulation of X province, announced a major revision of the rule interpretation of RESPA. See Also loans billings mt . Rule, the term "first mortgage broker" is defined. Under the rules, mortgage brokers, the Good Faith Estimate three days after the loan application later than (GFE) must disclose the direct and indirect payments. (Please refer to 24 CFR 3500.7 () and (C).) Such disclosure is also closing in on the settlement statement as the final figures should be provided to consumers. (24 CFR 3500.8;. 24 CFR Part 3500, A Appendix (HUD - HUD and the 1 - 1A) procedures to fill) in the GFE, settlement statements, pre-paid mortgage broker fees for lenders, the "pay as outside view should be. "closed (POC), and the sum is not calculated on arrival. See Also loan on paid off car . ((), Please refer to 24 CFR 3500.7 (2) 24 CFR Part 3500 and, A Appendix) rules in 1992, payments that are spending at or before settlement rates are similar to the title agent mortgage brokers as service providers, attorneys, appraisers, and treats. . , RESPA, including Section 8 and subject to disclosure to the commission, and may not.
The 1992 rule, take a position on whether legal or illegal per se other names of the classes or indirectly funded by fees paid by financial institutions back brokers and yield spread premiums explicitly was. Check out also loans by web . In the illustration, the requirements of RESPA, codified as an illustration of the fact situation of 5 and 12 in Appendix B 24 CFR Part ~ 3500, 1992, regulations required for the settlement, especially for the sake bullet "Insurance Service Release fees "such as fees or" yield spread premiums, "the statement public. Rule 1992, in particular, the commission has recognized the existence of the illustrations provided if it were to be built in the form disclosed the HUD, this requirement has been designed to ensure the disclosure of those but beneath itself can not create a presumption of legality or illegal is not allowed.
Anti-kickback provisions of RESPA and unearned premiums anti-referral fee will be implemented by 24 CFR 3500.14. Regulation X, because of the introduction of settlement service business, other than any portion of the charges for services actually rendered, and repeat the prohibitions of Section 8 to grant or accept compensation or percentage split. See Also loan lenders and brokers . (24 CFR 3500.14 (c).) X is regulated if no or nominal services are performed, and charges receivable by the person charging the fee for a duplicate target, or the prohibition of unearned premiums Provides that a violation. See Also loans in hour . (24 CFR 3500.14 (c) Please refer to.) Furthermore, 24 CFR 3500.14 (G) (1) (iv) the [a] for payments to every person's salary or compensation or other payment in good faith To order "facilities goods and permit clear that RESPA Section 8, for the services actually performed or furnished in practice."
Is that the regulations are, 24 CFR 3500.14 (g) (2) under the offer.
The Department can investigate the higher price in order to verify whether the result of a referral fee or commission split. Shall bear a reasonable relationship between the market value of goods or services provided by the payment of no value if, at or for the goods or services does not exceed the actual execution. These facts can be used as evidence of a violation of Section 8, may be the basis for the study of RESPA. High prices standing alone are not evidence of a violation of RESPA. The value of referral (ie, the value of additional business obtained thereby) pay, such articles should not be considered when determining whether it exceeds the reasonable value of services or facilities are not. ... (with emphasis).
Additionally, X regulations, [w] person in a position to refer settlement service business is chicken . Check out also loan uk ... to receive payment for providing additional settlement services as part of a real estate transaction, such payment shall be for actual services "reveals that, if necessary, the main services provided by that person is different." (24 CFR 3500.14 (G) (3).)
Since 1992, HUD is made legal payments to broker a mortgage, offer to issue or other various interpretations under these rules showing the location of stations that are not subject to the name of the commission of certain has. Rather, HUD is that whether or not related to the value of the property or goods actually performed or services furnished in fact reasonably pay to mortgage brokers in the transaction covered by the issue under RESPA consistently that advice. Compensation, or portion thereof, specialty products and reasonable, if not actually related to the services to be performed or furnished and actually charged in violation of Section 8 referral or unearned compensation () of RESPA or Figure 8 (b) there is, whether the payment or a combination of direct or indirect compensation.
Commitment to a recent HUD's rulemaking F.
Division, a mortgage broker to disclose indirect payments from the lender on the settlement statement and GFE, received comments on the requirements of Rule 1992. In response, the sector or require disclosure of fees by the funds back or indirectly, whether you are in the interests of the borrower, or was required to clarify the legality of the fee to the mortgage broker has established additional rules Sun somehow. 199591360 FR 4765019951219965
19971016HUD62 FR 53912199591360 FR 47650 19978""HUD 19979000
19987RESPA8 The Report's consumer protection recommendations included, among other items, that Congress consider establishment of an unfair and deceptive acts and practices remedy.
Under the "packaging" proposal set forth in the Report, settlement costs would be controlled more effectively by market forces. Consumers would be better able to comparison-shop, thereby encouraging creditors and others to operate efficiently and pass along discounts and lower prices. Check out also loan point usa customer service . In addition, the Report's recommendations would greatly simplify compliance for the industry and clarify legal uncertainties that create liability risks. Check out also loan with no job check .
I. This Policy Statement
This policy statement provides HUD's views of the legality of fees to mortgage brokers from lenders under existing law. In accordance with the Conference Report, in developing this policy statement, HUD met with representatives of government agencies, as well as a broad range of consumer and industry groups, including the Office of Thrift Supervision, the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the Federal Reserve Board, the National Association of Mortgage Brokers, the Mortgage Bankers Association of America, the American Bankers Association, the Consumer Mortgage Coalition, America's Community Bankers, the Consumer Bankers Association, the Independent Bankers Association of America, AARP, the National Consumer Law Center, Consumers Union, and the National Association of Consumer Advocates.
II. RESPA Policy Statement 1999-1
The Department hereby states its position on the legality of payments by lenders to mortgage brokers under the Real Estate Settlement Procedures Act (12 USC 2601 et seq .) (RESPA) and its implementing regulations at 24 CFR part 3500 (Regulation X). See Also loan with ssi . This Statement of Policy is issued pursuant to Section 19(a) of RESPA (12 USC 2617(a)) and 24 CFR 3500.4(a)(1)(ii). HUD is cognizant of the Conferees' statement in the Conference Report on the FY 1999 HUD Appropriations Act that "Congress never intended payments by lenders to mortgage brokers for goods or facilities actually furnished or for services actually performed to be violations of [Sections 8](a) or (b) (12 USC Sec. 2607) in its enactment of RESPA." (H. Rep. 105-769, at 260.) The Department is also cognizant of the congressional intent in enacting RESPA of protecting consumers from unnecessarily high settlement charges caused by abusive practices. (12 USC 2601.)
In transactions where lenders make payments to mortgage brokers, HUD does not consider such payments (ie, yield spread premiums or any other class of named payments), to be illegal per se . HUD does not view the name of the payment as the appropriate issue under RESPA. HUD's position that lender payments to mortgage brokers are not illegal per se does not imply, however, that yield spread premiums are legal in individual cases or classes of transactions. The fees in cases or classes of transactions are illegal if they violate the prohibitions of Section 8 of RESPA.
In determining whether a payment from a lender to a mortgage broker is permissible under Section 8 of RESPA, the first question is whether goods or facilities were actually furnished or services were actually performed for the compensation paid. The fact that goods or facilities have been actually furnished or that services have been actually performed by the mortgage broker does not by itself make the payment legal. The second question is whether the payments are reasonably related to the value of the goods or facilities that were actually furnished or services that were actually performed. Check out also loan online immediatly .
In applying this test, HUD believes that total compensation should be scrutinized to assure that it is reasonably related to goods, facilities, or services furnished or performed to determine whether it is legal under RESPA. Total compensation to a broker includes direct origination and other fees paid by the borrower, indirect fees, including those that are derived from the interest rate paid by the borrower, or a combination of some or all. See Also loan instanly . The Department considers that higher interest rates alone cannot justify higher total fees to mortgage brokers. Check out also loans boulder co . All fees will be scrutinized as part of total compensation to determine that total compensation is reasonably related to the goods or facilities actually furnished or services actually performed. HUD believes that total compensation should be carefully considered in relation to price structures and practices in similar transactions and in similar markets. See Also loan paid in full .
In light of 24 CFR 3500.5(b)(7), which exempts from RESPA coverage bona fide transfers of loan obligations in the secondary market, this policy statement encompasses only transactions where mortgage brokers are not the real source of funds (ie, table-funded transactions or transactions involving "intermediary" brokers). In table-funded transactions, the mortgage broker originates, processes and closes the loan in the broker's own name and, at or about the time of settlement, there is a simultaneous advance of the loan funds by the lender and an assignment of the loan to that lender. See Also loans 1 hour uk . (See 24 CFR 3500.2 (Definition of "table funding").) Likewise, in transactions where mortgage brokers are intermediaries, the broker provides loan origination services and the loan funds are provided by the lender; the loan, however, is closed in the lender's name.
C. Payments Must Be for Goods, Facilities or Services
In the determination of whether payments from lenders to mortgage brokers are permissible under Section 8 of RESPA, the threshold question is whether there were goods or facilities actually furnished or services actually performed for the total compensation paid to the mortgage broker. See Also loans by phone . In making the determination of whether compensable services are performed, HUD's letter to the Independent Bankers Association of America, dated February 14, 1995 (IBAA letter) may be useful. In that letter, HUD identified the following services normally performed in the origination of a loan:
(a) Taking information from the borrower and filling out the application;
(b) Analyzing the prospective borrower's income and debt and pre-qualifying the prospective borrower to determine the maximum mortgage that the prospective borrower can afford;
(c) Educating the prospective borrower in the home buying and financing process, advising the borrower about the different types of loan products available, and demonstrating how closing costs and monthly payments could vary under each product;
(d) Collecting financial information (tax returns, bank statements) and other related documents that are part of the application process;
(e) Initiating/ordering VOEs (verifications of employment) and VODs (verifications of deposit);
(f) Initiating/ordering requests for mortgage and other loan verifications;
(g) Initiating/ordering appraisals;
(h) Initiating/ordering inspections or engineering reports;
(i) Providing disclosures (truth in lending, good faith estimate, others) to the borrower;
(j) Assisting the borrower in understanding and clearing credit problems;
(k) Maintaining regular contact with the borrower, realtors, lender, between application and closing to appraise them of the status of the application and gather any additional information as needed;
(l) Ordering legal documents;
(m) Determining whether the property was located in a flood zone or ordering such service; and
(n) Participating in the loan closing.
While this list does not exhaust all possible settlement services, and while the advent of computer technology has, in some cases, changed how a broker's settlement services are performed, HUD believes that the letter still represents a generally accurate description of the mortgage origination process. For other services to be acknowledged as compensable under RESPA, they should be identifiable and meaningful services akin to those identified in the IBAA letter including, for example, the operation of a computer loan origination system (CLO) or an automated underwriting system (AUS).
The IBAA letter provided guidance on whether HUD would take an enforcement action under RESPA. In the context of the letter's particular facts and subject to the reasonableness test which is discussed below, HUD articulated that it generally would be satisfied that sufficient origination work was performed to justify compensation if it found that:
The lender's agent or contractor took the application information (under item (a)); and
The lender's agent or contractor performed at least five additional items on the list above. Check out also loans for unemployed people .
In the letter and in the context of its facts, HUD also pointed out that it is concerned that a fee for steering a customer to a particular lender could be disguised as compensation for "counseling-type" activities. Therefore, the letter states that if an agent or contractor is relying on taking the application and performing only "counseling type" services (b), (c), (d), (j), and (k) on the list above to justify its fee, HUD would also look to see that meaningful counseling not steering is provided. Check out also loans 24 7 . In analyzing transactions addressed in the IBAA letter, HUD said it would be satisfied that no steering occurred if it found that:
Counseling gave the borrower the opportunity to consider products from at least three different lenders;
The entity performing the counseling would receive the same compensation regardless of which lender's products were ultimately selected; and
Any payment made for the "counseling-type" services is reasonably related to the services performed and not based on the amount of loan business referred to a particular lender. See Also loan spprovals .
In examining services provided by mortgage brokers and payments to mortgage brokers, HUD will look at the types of origination services listed in the IBAA letter to help determine whether compensable services are performed. However, the IBAA letter responded to a program where a relatively small fee was to be provided for limited services by lenders that were brokering loans.
Accordingly, the formulation in the IBAA letter of the number of origination services which may be required to be performed for compensation is not dispositive in analyzing more costly mortgage broker transactions where more comprehensive services are provided. The determinative test under RESPA is the relationship of the services, goods or facilities furnished to the total compensation received by the broker (discussed below). In addition to services, mortgage brokers may furnish goods or facilities to the lender. For example, appraisals, credit reports, and other documents required for a complete loan file may be regarded as goods, and a reasonable portion of the broker's retail or "store-front" operation may generally be regarded as a facility for which a lender may compensate a broker. Check out also loan lenders 1 day . However, while a broker may be compensated for goods or facilities actually furnished or services actually performed, the loan itself, which is arranged by the mortgage broker, cannot be regarded as a "good" that the broker may sell to the lender and that the lender may pay for based upon the loan's yield's relation to market value, reasonable or otherwise. See Also loans for poor credit scores . In other words, in the context of a non-secondary market mortgage broker transaction, under HUD's rules, it is not proper to argue that a loan is a "good," in the sense of an instrument bearing a particular yield, thus justifying any yield spread premium to the mortgage broker, however great, on the grounds that such yield spread premium is the "market value" of the good. Check out also loans for college .
D. Compensation Must Be Reasonably Related to Value of Goods, Facilities or Services
The fact that goods or facilities have been actually furnished or that services have been actually performed by the mortgage broker, as described in the IBAA letter, does not by itself make a payment by a lender to a mortgage broker legal. The next inquiry is whether the payment is reasonably related to the value of the goods or facilities that were actually furnished or services that were actually performed. Check out also loan online immediatly . Although RESPA is not a rate-making statute, HUD is authorized to ensure that payments from lenders to mortgage brokers are reasonably related to the value of the goods or facilities actually furnished or services actually performed, and are not compensation for the referrals of business, splits of fees or unearned fees.
In analyzing whether a particular payment or fee bears a reasonable relationship to the value of the goods or facilities actually furnished or services actually performed, HUD believes that payments must be commensurate with that amount normally charged for similar services, goods or facilities. This analysis requires careful consideration of fees paid in relation to price structures and practices in similar transactions and in similar markets. See Also loan paid in full . If the payment or a portion thereof bears no reasonable relationship to the market value of the goods, facilities or services provided, the excess over the market rate may be used as evidence of a compensated referral or an unearned fee in violation of Section 8(a) or (b) of RESPA. (See 24 CFR 3500.14(g)(2).) Moreover, HUD also believes that the market price used to determine whether a particular payment meets the reasonableness test may not include a referral fee or unearned fee, because such fees are prohibited by RESPA. Congress was clear that for payments to be legal under Section 8, they must bear a reasonable relationship to the value received by the person or company making the payment. (S. Rep. 93-866, at 6551.)
The Department recognizes that some of the goods or facilities actually furnished or services actually performed by the broker in originating a loan are "for" the lender and other goods or facilities actually furnished or services actually performed are "for" the borrower. HUD does not believe that it is necessary or even feasible to identify or allocate which facilities, goods or services are performed or provided for the lender, for the consumer, or as a function of State or Federal law. All services, goods and facilities inure to the benefit of both the borrower and the lender in the sense that they make the loan transaction possible (eg, an appraisal is necessary to assure that the lender has adequate security, as well as to advise the borrower of the value of the property and to complete the borrower's loan).
The consumer is ultimately purchasing the total loan and is ultimately paying for all the services needed to create the loan. All compensation to the broker either is paid by the borrower in the form of fees or points, directly or by addition to principal, or is derived from the interest rate of the loan paid by the borrower. Accordingly, in analyzing whether lender payments to mortgage brokers comport with the requirements of Section 8 of RESPA, HUD believes that the totality of the compensation to the mortgage broker for the loan must be examined. For example, if the lender pays the mortgage broker $600 and the borrower pays the mortgage broker $500, the total compensation of $1,100 would be examined to determine whether it is reasonably related to the goods or facilities actually furnished or services actually performed by the broker.
Therefore, in applying this test, HUD believes that total compensation should be scrutinized to assure that it is reasonably related to goods, facilities, or services furnished or performed to determine whether total compensation is legal under RESPA. Total compensation to a broker includes direct origination and other fees paid by the borrower, indirect fees, including those that are derived from the interest rate paid by the borrower, or a combination of some or all. See Also loan instanly . All payments, including payments based upon a percentage of the loan amount, are subject to the reasonableness test defined above. In applying this test, the Department considers that higher interest rates alone cannot justify higher total fees to mortgage brokers. Check out also loans boulder co . All fees will be scrutinized as part of total compensation to determine that total compensation is reasonably related to the goods or facilities actually furnished or services actually performed.
In so-called "no-cost" loans, borrowers accept a higher interest rate in order to reduce direct fees, and the absence of direct payments to the mortgage broker is made up by higher indirect fees (eg, yield spread premiums). Check out also loans in las vegas nv . Higher indirect fees in such arrangements are legal if, and only if, the total compensation is reasonably related to the goods or facilities actually furnished or services actually performed.
In determining whether the compensation paid to a mortgage broker is reasonably related to the goods or facilities actually furnished or services actually performed, HUD will consider all compensation, including any volume-based compensation. See Also loan until next payday . In this analysis, there may be no payments merely for referrals of business under Section 8 of RESPA. (See 24 CFR 3500.14.)
Under HUD's rules, when a person in a position to refer settlement service business receives a payment for providing additional settlement services as part of the transaction, such payment must be for services that are actual, necessary and distinct from the primary services provided by the person. (24 CFR 3500.14(g)(3).) While mortgage brokers may receive part of their compensation from a lender, where the lender payment duplicates direct compensation paid by the borrower for goods or facilities actually furnished or services actually performed, Section 8 is violated. Check out also loan website for low income . In light of the fact that the borrower and the lender may both contribute to some items, HUD believes that it is best to evaluate seemingly duplicative fees by analyzing total compensation under the reasonableness test described above.
E. Information Provided to Borrower
Under current RESPA rules mortgage brokers are required to disclose estimated direct and indirect fees on the Good Faith Estimate (GFE) no later than 3 days after loan application. (See 24 CFR 3500.7(a) and (b).) Such disclosure must also be provided to consumers, as a final exact figure, at closing on the settlement statement. (24 CFR 3500.8; 24 CFR part 3500, Appendix A.) On the GFE and the settlement statement, lender payments to mortgage brokers must be shown as "Paid Outside of Closing" (POC), and are not computed in arriving at totals. (24 CFR 3500.7(a)(2).) The requirement that all fees be disclosed on the GFE is intended to assure that consumers are shown the full amount of compensation to brokers and others early in the transaction.
The Department has always indicated that any fees charged in settlement transactions should be clearly disclosed so that the consumer can understand the nature and recipient of the payment. Code-like abbreviations like "YSP to DBG, POC", for instance, have been noted. See Also loan money wired right now . Also, the Department has seen examples on the GFE and/or the settlement statement where the identity and/or purpose of the fees are not clearly disclosed.
The Department considers unclear and confusing disclosures to be contrary to the statute's and the regulation's purposes of making RESPA-covered transactions understandable to the consumer. At a minimum, all fees to the mortgage broker are to be clearly labeled and properly estimated on the GFE. See Also loans in gloucester . On the settlement statement, the name of the recipient of the fee (in this case, the mortgage broker) is to be clearly labeled and listed, and the fee received from a lender is to be clearly labeled and listed in the interest of clarity. For example, a fee would be appropriately disclosed as "Mortgage broker fee from lender to XYZ Corporation (POC)." In the interest of clarity, other fees or payments from the borrower to the mortgage broker should identify that they are mortgage broker fees from the borrower.
There is no requirement under existing law that consumers be fully informed of the broker's services and compensation prior to the GFE. Nevertheless, HUD believes that the broker should provide the consumer with information about the broker's services and compensation, and agreement by the consumer to the arrangement should occur as early as possible in the process. Mortgage brokers and lenders can improve their ability to demonstrate the reasonableness of their fees if the broker discloses the nature of the broker's services and the various methods of compensation at the time the consumer first discusses the possibility of a loan with the broker. See Also loans in 15 minutes .
The legislative history makes clear that RESPA was not intended to be a rate-setting statute and that Congress instead favored a market-based approach. (S. Rep. No. 93-866 at 6546 (1974).) In making the determination of whether a payment is bona fide compensation for goods or facilities actually furnished or services actually performed, HUD has, in the past, indicated that it would examine whether the price paid for the goods, facilities or services is truly a market price; that is, if in an arm's length transaction a purchaser would buy the services at or near the amount charged. If the fee the consumer pays is disclosed and agreed to, along with its relationship to the interest rate and points for the loan and any lender-paid fees to the broker, a market price for the services, goods or facilities could be attained. HUD believes that for the market to work effectively, borrowers should be afforded a meaningful opportunity to select the most appropriate product and determine what price they are willing to pay for the loan based on disclosures which provide clear and understandable information.
The Department reiterates its long-standing view that disclosure alone does not make illegal fees legal under RESPA. On the other hand, while under current law, pre-application disclosure to the consumer is not required, HUD believes that fuller information provided at the earliest possible moment in the shopping process would increase consumer satisfaction and reduce the possibility of misunderstanding.
HUD commends the National Association of Mortgage Brokers and the Mortgage Bankers Association of America for strongly suggesting that their members furnish consumers with a form describing the function of mortgage brokers and stating that a mortgage broker may receive a fee in the transaction from a lender.
Although this statement of policy does not mandate disclosures beyond those currently required by RESPA and Regulation X, the most effective approach to disclosure would allow a prospective borrower to properly evaluate the nature of the services and all costs for a broker transaction, and to agree to such services and costs before applying for a loan. Under such an approach, the broker would make the borrower aware of whether the broker is or is not serving as the consumer's agent to shop for a loan, and the total compensation to be paid to the mortgage broker, including the amounts of each of the fees making up that compensation. If indirect fees are paid, the consumer would be made aware of the amount of these fees and their relationship to direct fees and an increased interest rate. If the consumer may reduce the interest rate through increased fees or points, this option also would be explained. HUD recognizes that in many cases, the industry has not been using this approach because it has not been required. Check out also loans in delaware . Moreover, new methods may require time to implement. HUD encourages these efforts going forward and believes that if these desirable disclosure practices were adhered to by all industry participants, the need for more prescriptive regulatory or legislative actions concerning this specific problem could be tempered or even made unnecessary.
While the Department is issuing this statement of policy to comply with a Congressional directive that HUD clarify its position on the legality of lender payments to mortgage brokers, HUD agrees with segments of the mortgage lending and settlement service industries and consumer representatives that legislation to improve RESPA is needed. HUD believes that broad legislative reform along the lines specified in the HUD/Federal Reserve Board Report remains the most effective way to resolve the difficulties and legal uncertainties under RESPA and TILA for industry and consumers alike. Statutory changes like those recommended in the Report would, if adopted, provide the most balanced approach to resolving these contentious issues by providing consumers with better and firmer information about the costs associated with home-secured credit transactions and providing creditors and mortgage brokers with clearer rules.
III. Executive Order 12866, Regulatory Planning and Review
The Office of Management and Budget (OMB) reviewed this Statement of Policy under Executive Order 12866, Regulatory Planning and Review . OMB determined that this Statement of Policy is a "significant regulatory action," as defined in section 3(f) of the Order (although not economically significant, as provided in section 3(f)(1) of the Order). Any changes made to the Statement of Policy subsequent to its submission to OMB are identified in the docket file, which is available for public inspection in the office of the Department's Rules Docket Clerk, Room 10276, 451 Seventh Street, SW, Washington, DC 20410-0500.
Date: February 22, 1999
William C. Apgar, Assistant Secretary for
Housing-Federal Housing Commissioner