JoshDom1898
Member
What is the name of your state?What is the name of your state?What is the name of your state? California
Hi, I am a real estate agent and I was contacted by a lender saying that I could get legally compensated by them if I refer my clients to them (assuming the loan gets funded) as long as I complete 5 requirements of the RESPA. My Mortgage broker says this is illegal, but the company says that a clause within section 8 of Hud makes it legal. So who is right? I don't want to break the law but this looks like a great deal.
HUD's 1999 RESPA Policy Statement. In a 1999 Policy Statement, HUD stated its position on the legality of payments by lenders to mortgage brokers under RESPA and Regulation X:
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 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.
(Statement of Policy 1999-1, paragraph II.A.; emphasis added).
a. Payments must be for goods, facilities, or services actually provided. To help determine whether compensable services are performed, HUD referred to its letter to the Independent Bankers Association of America, dated February 14, 1995 (IBAA letter). 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
Participating in the loan closing.
(Statement of Policy 1999-1, paragraph II.C.).
In its 1999 Policy Statement, HUD added that, for "other services to be compensable under RESPA, they should be identifiable and meaningful services akin to those identified" above, "for example, the operation of a computer origination system (CLO) or an automated underwriting system (AUS)." (Statement of Policy 1999-1, paragraph II.C.).
(1) General rule: to justify compensation, settlement service provider must take application and perform five additional services. HUD has 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) [in the list above]); and the lender's agent or contractor performed at least five additional items on the list above.
(Statement of Policy 1999-1, paragraph II.C.).
(2) If only counseling-type services, three additional requirements. HUD added three requirements if the lender's agent or contractor relied on taking the application and performing only "counseling type" services (see (b), (c), (d), (j), and (k) on the list above) to justify a fee:
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.
(Statement of Policy 1999-1, paragraph II.C.).
(3) Determinative test: relationship of services to total compensation. In its 1999 Policy Statement, HUD cautioned that 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 [than in the IBAA scenario]. The determinative test under RESPA is the relationship of the services, goods or facilities furnished to the total compensation received by the broker.
(Statement of Policy 1999-1, paragraph II.C.; emphasis added).
b. Compensation must be reasonably related to value of goods, facilities, or services
In its 1999 Policy Statement, HUD wrote:
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. 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).)
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. 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. 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 (e.g., yield spread premiums). 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. 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. 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.
(Statement of Policy 1999-1, paragraph II.D.).
Please get back to me as soon as possible. Thank you
Joshua
Hi, I am a real estate agent and I was contacted by a lender saying that I could get legally compensated by them if I refer my clients to them (assuming the loan gets funded) as long as I complete 5 requirements of the RESPA. My Mortgage broker says this is illegal, but the company says that a clause within section 8 of Hud makes it legal. So who is right? I don't want to break the law but this looks like a great deal.
HUD's 1999 RESPA Policy Statement. In a 1999 Policy Statement, HUD stated its position on the legality of payments by lenders to mortgage brokers under RESPA and Regulation X:
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 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.
(Statement of Policy 1999-1, paragraph II.A.; emphasis added).
a. Payments must be for goods, facilities, or services actually provided. To help determine whether compensable services are performed, HUD referred to its letter to the Independent Bankers Association of America, dated February 14, 1995 (IBAA letter). 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
Participating in the loan closing. (Statement of Policy 1999-1, paragraph II.C.).
In its 1999 Policy Statement, HUD added that, for "other services to be compensable under RESPA, they should be identifiable and meaningful services akin to those identified" above, "for example, the operation of a computer origination system (CLO) or an automated underwriting system (AUS)." (Statement of Policy 1999-1, paragraph II.C.).
(1) General rule: to justify compensation, settlement service provider must take application and perform five additional services. HUD has 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) [in the list above]); and the lender's agent or contractor performed at least five additional items on the list above.
(Statement of Policy 1999-1, paragraph II.C.).
(2) If only counseling-type services, three additional requirements. HUD added three requirements if the lender's agent or contractor relied on taking the application and performing only "counseling type" services (see (b), (c), (d), (j), and (k) on the list above) to justify a fee:
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.
(Statement of Policy 1999-1, paragraph II.C.).
(3) Determinative test: relationship of services to total compensation. In its 1999 Policy Statement, HUD cautioned that 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 [than in the IBAA scenario]. The determinative test under RESPA is the relationship of the services, goods or facilities furnished to the total compensation received by the broker.
(Statement of Policy 1999-1, paragraph II.C.; emphasis added).
b. Compensation must be reasonably related to value of goods, facilities, or services
In its 1999 Policy Statement, HUD wrote:
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. 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).)
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. 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. 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 (e.g., yield spread premiums). 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. 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. 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.
(Statement of Policy 1999-1, paragraph II.D.).
Please get back to me as soon as possible. Thank you
Joshua