Is Your Loan Officer Licensed, HUD Addresses "Kickback Violations" and Requests Real Estate Agent Opinions

You may delay, but time will not. ~ Benjamin Franklin


You Asked for it…Now You Have it!

There is no escaping it…although there are thousands of loan officers out there who are trying to do just that! Today is the official start of the national loan officer licensing requirements! After years of waiting…the day has come. In order to originate a loan as of today, a loan officer, who does not work for an exempted entity (a depository bank), MUST have their license approved by the appropriate state agency. Some states have issued extensions, but Arizona has not.

Is YOUR loan officer licensed? Did they take the minimum required 20 hours of pre-licensing education? Did they pass both the Federal and State licensing exam? According to the Nationwide Mortgage Licensing System (NMLS) test results, only 71% of originators passed the federal exam the first time around and for those who had to take the exam again, only 66% passed. The Superintendent of the Arizona Department of Financial Institutions (DFI) reports that so far they have received 3900 applications. They have processed 2600, 1500 have been approved and 1100 are awaiting additional information.

So again, is your loan officer licensed and will they be able to close your client’s loan in a timely manner? This may be a question you want to ask before it is too late. I am a licensed loan originator in both Arizona and Utah. For 20 years, my career has been and still is originating loans and I hold that fact in the highest regard. Let me know if my knowledge, experience and background can be of assistance to you or your customers!

HUD Issues Ban on Referral Fees Paid to Agents for Home Warranty Referrals

One June 25, 2010, HUD issued a final rule interpreting section 8 of RESPA and HUD’s regulations as they apply to the compensation provided by home warranty companies to real estate brokers and agents. Interpretive rules are exempt from public comment under the Administrative Procedure Act.

Under section 8 of RESPA, services performed by real estate brokers and agents as additional settlement services in a real estate transaction are compensable if the services…

1) are actual, necessary and distinct from the primary services provided by the real estate broker or agent,
2) the services are not nominal,
3) and the payment is not a duplicative charge.

A referral is not a compensable service for which a broker or agent may receive compensation.

Do you have an opinion on “Affiliated Business Arrangements” (Builder-Owned Mortgage Companies)

I have heard you talk about it in anger and I have heard you been defeated about it, but now is your opportunity to do something about it! HUD is in the process of initiating rulemaking to strengthen and clarify the prohibition against the ‘‘required use’’ of affiliated settlement service providers in residential mortgage transactions under section 8 of RESPA. HUD has received complaints that some homebuyers are committing to use a builder’s affiliated mortgage lender in exchange for construction discounts or discounted upgrades, without sufficient time to research their contracts or to comparison shop. HUD would like to solicit your experience that can be used to create the future revision or clarification of the regulatory definition of the ‘‘required use’’ of affiliated settlement service providers in residential mortgage transactions.

Background

In the late 1960s, Congress was concerned about the excessive cost of settlement services for residential loans. Congress found that many homebuyers had very little knowledge about the settlement process and that homebuyers often did not shop for, and were not involved in, choosing the settlement service providers that they would be required to use. Instead the delivery was controlled by a system by those in a position to refer settlement business (such as builders, real estate agents, and lawyers), resulting in ‘‘kickbacks’’ by settlement service providers to those who referred business to them. In this system, service providers did not compete for business by providing a quality service at a reasonable cost to homebuyers. Rather, settlement service providers generated business by providing the most lucrative kickbacks to those in a position to refer business to them.

Through RESPA and subsequent amendments, Congress sought to change this. In order to encourage consumers to shop for settlement services, and cause settlement service providers to compete for homebuyers’ business, RESPA requires that the nature and costs of real estate settlement services be disclosed in advance to the consumer, and it forbids the payment of referral fees, kickbacks, and unearned fees for real estate settlement services.

RESPA defines an ‘‘affiliated business arrangement’’ as an arrangement in which…
(A) a person who is in a position to refer business incident to or a part of a real estate settlement service involving a mortgage loan, has either an affiliate relationship with or a beneficial ownership interest of more than 1 percent in a provider of settlement services; and
(B) either of such persons directly or indirectly refers such business to that provider or affirmatively influences the selection of that provider.

In RESPA covered transactions, referrals to affiliated settlement service providers are subject to civil and criminal liability under section 8 of RESPA, it can be considered a prohibited kickback or thing of value for the referral. However, there is an exemption for affiliate referrals that allows for returns on ownership interest if the referrals involve an affiliated business arrangement AND three other conditions are met. The three other conditions are:

(1) The referral is accompanied by a disclosure of affiliation and estimated charges by the provider to which the consumer is referred,
(2) the consumer is not ‘‘required to use’’ a particular settlement service provider; and
(3) the arrangement does not involve otherwise prohibited compensation.

Requiring the use of an affiliate is thus presumed to involve a violation of Section 8.

Currently, the definition of ‘‘required use’’ in HUD’s existing RESPA regulations reads as follows:
“Required use means a situation in which a person must use a particular provider of a settlement service in order to have access to some distinct service or property, and the person will pay for the settlement service of the particular provider or will pay a charge attributable, in whole or in part, to the settlement service. However, the offering of a package or (combination of settlement services) or the offering of discounts or rebates to consumers for the purchase of multiple settlement services does not constitute a required use. Any package or discount must be optional to the purchaser. The discount must be a true discount below the prices that are otherwise generally available, and must not be made up by higher costs elsewhere in the settlement process.”

On November 17, 2008 published a final rule amending its RESPA regulations to protect consumers from kickbacks and referral fees that tend to unnecessarily increase settlement costs. HUD, however, had received consumer complaints and comments about certain affiliated business practices. These complaints and comments included concerns that residential developers and homebuilders would offer to reduce the cost of a home (for example, by adding free construction upgrades, or discounting the home price) if the homebuyer used the developer’s affiliated mortgage lender. Buyers also complained that, in some instances, because the timing of the contract with the builder precluded the buyer from shopping, the affiliated lender used by the homebuyer was able to charge settlement costs or interest rates that were not competitive with those of nonaffiliated lenders. The complaints indicated that these incentivized referrals to affiliate lenders may be steering techniques that effectively ‘‘require the use’’ of the affiliate.

In order to address concerns about incentivized affiliate referrals, HUD intends to pursue new rulemaking on the subject of ‘‘required use.’’

HUD is requesting information from all interested members of the public, including individual consumers, consumer advocacy organizations, housing counseling agencies, the real estate and mortgage industry, and federal, state, and local consumer protection and enforcement agencies. HUD would like to hear about individual consumers’ experiences. In particular, HUD seeks information that would determine the benefits and costs of possible regulatory alternatives. For instance, have economic incentives to use affiliated lenders facilitated inflated appraisals or lowered underwriting standards in the lending market? Has required use played any role in creating recent situations where borrowers are more likely to be ‘‘underwater?’’ You are encouraged to provide data that would inform analysis of both the magnitude of the required use problem and the potential regulatory options to address the problem.

HUD invites comment on any aspect of referral arrangements in residential mortgage transactions that may assist HUD in developing any new or revised protections, but HUD specifically requests information on the following questions and requests as detailed and factual information as possible in responding to these questions.
1. Tailoring ‘‘required use’’ to reach abusive incentive schemes, but not beneficial discounts or packages.
Some have suggested that builders’ incentive programs discourage homebuyers from comparison shopping for the best loan, because:
(1) The value of some of the incentives offered by builders for the use of their affiliated lender (e.g., kitchen upgrades) are difficult for consumers to quantify when comparing the loan terms and settlement costs of the affiliated lender with those of nonaffiliated lenders; and
(2) often, in order to get the incentive a builder is offering, a homebuyer must commit to the use of the builder’s affiliated lender at the time that the contract for the construction of the home is executed, which may be many months before settlement will occur and long before the typical consumer would begin shopping for a lender; and
(3) that the builder encourages the buyer to commit to the contract before the buyer has time to fully consider alternatives and comparison shop.

To assist in determining whether these claims are correct, HUD asks:
(a) What types of discounts and incentives are tied to the use of an affiliated settlement service provider such as a mortgage lender?
(b) In a new home purchase transaction, at what points in time are incentives for the use of a builder affiliated lender discussed with a potential homebuyer?
(c) At what point, generally, in a new home purchase transaction, are the homebuyers expected to determine whether or not they will use a builder affiliated lender?
(d) Is there evidence demonstrating that homebuyers who are offered incentives by builders to use builder affiliated lenders are as likely or less likely to engage in comparison shopping for a lender as are those homebuyers who are not offered an incentive to use a builder-affiliated lender?
(e) Is there evidence that buyers using affiliated lenders pay higher rates of interest or higher closing costs than those that use unaffiliated lenders?
(f) Is there evidence demonstrating that homebuyers benefit from some types of incentives and not from others or by incentives offered by some types of business but not others? Incentives could include benefits such as discounts on the costs of settlement, payment of settlement services, and discounts on upgrades to the house.

2. Forward Loan Commitments.
A forward loan commitment (forward commitment), in its simplest definition, is a pledge to provide a loan at a future date. It is HUD’s understanding that in the homebuilding industry, some large-scale homebuilders purchase forward commitments from lenders pursuant to which the lenders make an aggregate amount of mortgage financing available to the homebuilder’s customers under the terms of the commitment.

To better understand forward commitments and their use in mortgage loan transactions, HUD seeks comment on the following:
(a) How are forward commitments purchased and used as described above, and are there alternative types, terms, or uses for builder-purchased forward commitments?
(b) Is there evidence as to the prevalence of builder-purchased forward commitments?
(c) What is the benefit to homebuyers of forward commitments in mortgage loan transactions from affiliated as well as nonaffiliated lenders?

3. Other Issues.
A concern raised is that certain incentives are built into the cost of the home and are therefore not true discounts. Many also stated a belief that an affiliated lender has a special, potentially improper, interest in financing a house at any price set by a seller.

In this regard, HUD asks:
a) Is there any data that home sellers are providing discounts or upgrades to buyers who agree to use affiliated businesses based on prices that are different from those offered to buyers who decline such offers?
(b) Is there any evidence that home sellers either include or do not include in the listed price of the house the cost of the incentives that they offer for the use of an affiliated lender?
(c) Do homes sold with incentives to the homebuyer appraise at the pre- or post-incentive price? Is it possible to isolate the effects of standard builder construction upgrades and custom upgrades requested by the consumer on the appraised value?
(d) How do affiliate-originated mortgages perform compared to the local average (e.g., in the case of default or the homeowner being ‘‘under water’’ statistics)?
(e) How do prices of new construction homes financed by affiliated lenders compare with prices of new construction homes financed by non-affiliates? That is, is there evidence that builders do not negotiate down to or near to incentivized prices in the absence of an incentive to use an affiliate?
(f) Is there data on the extent to which the current affiliated business disclosure encourages consumers to comparison shop with non-affiliated service providers before signing contracts? Can the affiliated business disclosure be improved to inform consumers of the advantages and disadvantages of affiliated lending practices?

4. One-Stop Shopping.
HUD received comments indicating that limiting referrals to affiliates adversely affects one-stop shopping options that could benefit consumers.

Accordingly, HUD asks whether there is any way to quantify the benefit to homebuyers of one-stop shopping. Additionally, is there any evidence that homebuyers derive greater benefit from one-stop shopping than from comparison shopping for the best loan terms and settlement costs?

5. Incentives vs. Disincentives or Penalties.
HUD requests comments on the relationship between incentives to use an affiliated settlement service provider and disincentives or penalties for using a nonaffiliated settlement service provider, and how incentives and disincentives might be treated in the new regulation. To assist in the development of distinctions or equivalencies between incentives and disincentives, HUD asks for information concerning cases where an incentive to use a certain provider would not have the same effect as a disincentive for failure to use another provider.

While HUD specifically seeks comments on the foregoing questions, HUD welcomes additional information that will help inform HUD’s views on this issue.

Here is your opportunity to express your concerns. I know you have opinions on this subject so here is your chance to do something about it.

ALL COMMENTS DUE by September 1, 2010
Interested persons are invited to submit comments by email.
All submissions must refer to the docket number and title.


“Docket No. FR–5352–A–01 Real Estate Settlement Procedures Act (RESPA): Strengthening and Clarifying RESPA’s ‘‘Required Use’’ Prohibition Advance Notice of Proposed Rulemaking”

Interested persons may submit comments electronically through the Federal e-Rulemaking Portal at www.regulations.gov.


Comments submitted electronically can be viewed by interested members of the public. Those who comment should follow the instructions provided on that site to submit comments electronically. Facsimile (FAX) comments are not acceptable.

Psychiatry students were in their Emotional Extremes class.
"Let's set some parameters," the professor said. "What's the opposite of joy?" he asked one student.
"Sadness," he replied.
"The opposite of depression?" he asked another student.
"Elation," he replied.
"The opposite of woe?" the prof asked a young woman from Texas.
The Texan replied,

"Sir, I believe that would be giddyup."


Have a great rest of the week and safe holiday weekend!