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RESPA Sec. 8 Enforcement: CFPB Scrutiny of Settlement Fees, AfBAs and Marketing Service Agreements Best Practices for Mortgage Lenders, Insurers, Title Companies and Law Firms to Minimize Exposure
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WEDNESDAY, MARCH 4, 2015
Presenting a live 90-minute webinar with interactive Q&A
Holly Spencer Bunting, Partner, K&L Gates, Washington, D.C.
Heather C. Hutchings, Member, Dykema Gossett, Washington, D.C.
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RESPA SECTION 8
ENFORCEMENT
Holly Spencer Bunting
K&L Gates
Heather C. Hutchings
Dykema Gossett
CONSUMER FINANCIAL PROTECTION BUREAU
EFTA
ECOA
FCRA
GLB
FDCPA
HOEPA
HMDA
TIL
RESPA
SAFE Act
FDIC
INTERSTATE LAND
SALES
Transfer of Existing Consumer Laws
CONSUMER FINANCIAL PROTECTION BUREAU
Enormous Powers
1. Authority for Numerous Statutes
2. Power to Write Rules
a. Carry out purposes and objectives of federal consumer financial laws and prevent evasions thereof
b. Mandate form/content of disclosures
c. Identify unfair and deceptive practices
d. Restrict pre-dispute arbitration
e. Impose registration requirements
3. Enforcement authority
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CFPB PACKS A WALLOP
Penalties
2. Enforcement authority beyond original statutes
a. Can launch investigations (C&D power)
b. Can bring litigation
c. Can conduct studies, collect information and make reports
1. Nuclear arsenal of weaponry
a. Including:
Rescission
Refunds
Restitution
Damages
Unjust enrichment
Public notification
CFPB PACKS A WALLOP (cont’d)
Penalties (cont’d)
3. Civil $ penalties
Up to $5,000 per day
$25,000 per day for reckless violation
Up to $1.0 million for knowing violation
RESPA ENFORCEMENT ACTIONS
1. More than 60 total enforcement actions thus far by CFPB
a. At least 16 of total actions involve RESPA
b. Many RESPA actions carried over from HUD investigations
c. Topics include:
Affiliated business arrangements
Captive mortgage reinsurance
Rental of office space
Splitting of fees
Referral fees to salespersons
GFE
Marketing Services Agreement
Lead generation/endorsements
Free marketing services
RESPA ENFORCEMENT ACTIONS
2. CFPB sought to recover:
a. Disgorgement of profits
b. Civil money penalties
c. Compliance monitoring and reporting
d. Production of records
3. Payments to CFPB range from $30,000 to $24.0M
PMI & CAPTIVE REINSURANCE Civil Action and Settlement 1. Allegation: PMI companies payments to Lender owned reinsurance
companies were in excess of risk assumed by reinsurance companies
2. Three waves
a. Genworth, United Guaranty, Radian, MGIC
Collectively pay $15M
Cease arrangements
Enjoined from entering into new arrangements
Submit to compliance monitoring and reporting
b. Republic Mortgage Insurance Corp.
Similar Consent Order
$100,000 civil penalty
c. CFPB v. PHH
Civil lawsuit
3. All HUD referrals
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Paul Taylor Corp. Affiliated Business Arrangement
1. Allegation: Paul Taylor owns interest in two joint venture mortgage
companies. CFPB alleges they are shams.
work performed by bank and mortgage company venturers
no employees, no origination, processing, underwriting
2. CFPB relying on HUD 1996-2 Policy Statement
3. Taylor pays $118,194, full amount of distributions over 3 years
Agrees to cease and desist for 5 years from owning another settlement
service provider (other than sale of homes)
4. FDIC referral
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Borders & Borders PLC Affiliated Business Arrangement
1. Allegation: Law firm’s nine joint venture title agencies a sham
did not have own offices
email address, phone numbers
single independent contractor did the title work
no outside customers
no attempt to get outside business
much of work done by B&B
2. No settlement – CFPB files Civil Suit
Disgorgement of all revenues
Injunctions against B&B and its members
3. HUD referral
B&B shut down jvs before CFPB started investigation
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Affiliated Business Arrangement Takeaways
1. RESPA expressly authorizes affiliated business arrangements, but
they must be legitimate
2. Joint ventures are not prohibited, but they are risky.
3. Companies considering joint venture arrangements should ensure
that concerns from HUD 1996-2 Policy Statement are addressed.
4. Is that enough?
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Realty South Required Use/AfBA Disclosure
1. Allegation: Reality South’s Purchase Contract required use of Title
South and Title South Closing Center
AfBA disclosure language promoted and marketed affiliates
Defective AfBA Disclosure Statement (font, capital lettering, format)
2. Realty South self-corrected Purchase Contract
Now provide consumers a choice: select one of 2 boxes
Title South or Other
3. Consent Order
Realty South AfBA statement to mirror Appendix D of Reg X
Revise training manuals to inform agents of no required use
Civil money penalty of $500,000
Produce all HUD-1s from errant Purchase Contracts
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Required Use/AfBA Disclosure Takeaways
1. Offer consumers a meaningful choice when presenting services
offered by affiliates.
2. Departure from disclosure formats set forth in regulations is not
recommended.
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Fidelity Mortgage Corporation Room/Desk Rentals
1. Allegation: Fidelity did not use space it leased from Bank and
amount paid for rent was disguised referral payment
Rent based upon revenues received by Fidelity from Bank
$27,000 amount Fidelity paid to Bank in “rent”
2. Fidelity agreed to cease and desist activities
Paid $57,000 civil money penalty
3. Bank not charged
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Room/Desk Rentals Takeaways
1. Payment must reflect fair market rent for the size and space
provided.
2. Amount of business generated as a result of the desk rental should
have no bearing on the cost to lease the space.
3. If you pay to rent space, use it!
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1st Alliance Lending, LLC Section 8(b) Investigation
1. Allegation: 1st Alliance provided loss-mitigation financing to
distressed borrowers. Hedge Fund funded these loans
1st Alliance paid Hedge Fund a split of monies earned on loans
1st Alliance continued to split fees with Hedge Fund even after it made
other financing arrangements in 83 deals
2. 1st Alliance discovers improprieties
Self-reports to CFPB
Fully cooperates in investigation
Admits liability
3. Consent Order
Paid civil money penalty of $83,000
Agrees to comply with RESPA
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Stonebridge Title Services Referral Fees/Fee Splits/Employee Payments
1. Allegation: Stonebridge paid referral fees to independent
salespeople in return for soliciting and referring title insurance
business to Stonebridge
Received commissions for each title order based on value of title
insurance
Salespeople paid on W-2 basis
No supervision or control over salespeople; acted as independent
contractors
2. Consent Order
Civil money penalty of $30,000
Amount based on ability to pay
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Referral Fees/Fee Splits Takeaways
1. RESPA clearly prohibits the payment of referral fees and fee splitting
arrangements.
2. If an arrangement contemplates payment where distinct services are not
provided, it is probably a violation.
3. If an arrangement contemplates payment of a person who is not your
employee for sending you business, it is probably a violation.
21
Amerisave Mortgage Corporation GFE/Affiliated Business Arrangement
1. Allegations: (RESPA only)
Charged fees before providing consumers with GFEs
Charged more than actual cost of credit report
Did not disclose affiliation with AMC before scheduling appraisal and/or
charging fees
2. Consent Order (not directly tied to RESPA allegations)
Payment of $14.8M for consumer redress
Civil money penalty of $4.5M
Civil money penalty of $1.5M for owner of company
Agree to give AfBA disclosure before making a referral or at time of loan
application
Engage Independent Consultant and provide compliance plan in
response to report of Independent Consultant for three years
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GFE/Affiliated Business Arrangement Takeaways
1. Put controls in place to prevent imposing charges prematurely.
2. Check your disclosure practices to ensure timely and accurate
disclosure of fees and affiliated businesses.
3. Get ready for TRID.
23
Lighthouse Title Marketing Services Agreements
1. First statement from CFPB on MSAs
2. Allegation: Lighthouse entered into MSAs with real estate
companies and paid marketing fees in return for the referral of title
business
No determination or documentation of fair market value
Payments based on referrals and what competitors were willing to pay
under MSA
No verification that marketing services actually performed
3. Lighthouse agreed to end MSAs and refrain from entering into
MSAs in the future
Paid $200,000 civil money penalty
Agreed to document all things of value given in excess of $5
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JPMorgan Chase/Wells Fargo Marketing Services to Loan Officers
1. Allegations:
Genuine Title purchased leads from a third-party vendor and provided
the leads to loan officers
Genuine Title paid for marketing letters to be printed, folded, stuffed, and
mailed on behalf of loan officers
Genuine Title made cash payments to the spouse of a loan officer
2. Consent Orders:
JPMorgan Chase
Civil money penalty of $600,000
Restitution of $300,000
Wells Fargo
Civil money penalty of approximately $24M
Restitution of $10.8M
Civil money penalty of $30,000 for individual loan officer
25
NewDay Financial Lead Generation/Endorsements
1. Allegations:
NewDay agreement with veterans’ organization to be designated as
exclusive lender
Email and direct mail advertisements sent to veterans promoting the
exclusive relationship and recommending use of NewDay for mortgages
Promoted exclusive relationship to members during conversations and
website recommended NewDay as a source for home loans
NewDay paid lead generation fees for each member that contacted
NewDay and applied for loans
Paid relationship not disclosed to consumers
2. Consent Order:
Civil money penalty of $2M
26
MSA/Lead Gen/Endorsement Takeaways
1. Are MSAs dead?
Carefully consider/reevaluate current arrangements for compliance.
Structure new arrangements tightly.
Independent valuation
Documentation of services provided
Keep marketing general
Beware the exclusive designation
2. Keep lead gen separate
Pay per lead, not on success
Steer clear of endorsements
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