WE'RE HEARING that the latest enforcement action brought by the Consumer Financial Protection Bureau against a lender was an obvious RESPA violation.
The CFPB fined a Missouri mortgage company $81,000 for allegedly paying referral fees to a bank in the form of rent.
It is a fairly common practice for title and mortgage companies to rent space from real estate brokers or others. “It makes good business sense,” according to Phillip Schulman, an attorney at K&L Gates.
“If you are a mortgage company, you want to rent space from a real estate broker because you want to get to know the agents in the office. Being in close proximity to people who are in a position to refer business makes good sense,” says Schulman.
However, the Department of Housing and Urban Development issued a policy statement in 1996 that has very specific guidelines for renting space.
Under the Real Estate Settlement and Procedures Act guidelines, rent should be based on the square footage and what an average tenant would pay for that space. It should not be based on the worth of possible referrals.
In the Missouri case, CFPB alleges that Fidelity Mortgage Corp., St. Louis, and its president Mark Figert leased the office space from an unidentified bank and tied the lease payments to the amount of loan production. The lender was making lease payments that varied from $800 to $2,000 a month and averaged about $1,350 a month.
“In this particular case, if the allegations are true, it is an obvious violation of RESPA,” Schulman said. “It is an example of how not to do it.”
There are a lot of RESPA rules and requirements that are ambiguous and vague. But in terms of renting space, HUD provided very specific guidance, the RESPA expert said. Now CFPB is in charge of RESPA enforcement and it is following HUD’s guidance.
From March 2012 through November 2012, Fidelity originated about 20 loans and it collected $27,076 in origination fees, according to the consent order released by the bureau.
CFPB ordered Fidelity and Figert to pay back all the proceeds from the referrals ($27,076) and levied a $54,000 civil money penalty. The lender could not be reached for comment.
The CFPB has bought several RESPA cases against mortgage insurance companies involving captive re-insurance arrangements with lenders. It has fined a Texas homebuilder for referrals and receiving kickbacks from two lenders.
“The CFPB is feeling its way through these RESPA cases,” Shulman said. He expects the CFPB will be more active going forward.
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