Times are tough in the mortgage business right now. Loans are
harder to come by, and you may be thinking of more creative ways to
bring new business into your bank. Let’s say you want to offer a
reward, maybe $50 cash or a girl card to anyone (customer or otherwise)
who refers someone to you who ends up closing a mortgage loan. Can you
do this?
The answer to this question is most likely not, but there are
exceptions. There are no simple answers in compliance, of course, and
this an example of that. The reason you cannot offer this type of
incentive is the Real Estate Settlement Procedures Act’s
(RESPA’s) “prohibition against kickbacks and unearned
fees.” [24 CFR 3500.14] RESPA is a HUD regulation that covers
“federally related mortgage loans,” [24 CFR 3500.2(b)] which
are consumer loans secured by residential real property. These include
home purchase loans, refinancings, and home equity loans used for a
consumer purpose (such as home improvement or to pay a child’s
tuition, for example).
RESPA also is the regulation that requires Good Faith Estimates
(GFEs) and HUD-1 Settlement Statements be provided, so if you’re
giving a GFE and HUD-1 to the borrower, you can assume the loan is
covered.
The provision at issue here is Section 8 (the section number of the
RESPA statute), and it prohibits the giving or receiving of “any
fee, kickback or other thing of value pursuant to any agreement or
understanding” [24 CFR 3500.14(g)] in connection with a covered
loan. This section prohibits unearned fees from being paid to third
parties who do no real work on the loan (like the person receiving the
reward in the example), which raises the cost of the loan to the
borrower.
“Thing of value” is construed very broadly, so in
addition to cash rewards or gift cards (which have obvious value),
waivers or discounts on bank fees or other breaks given are also
considered “things of value.” Most anything a person would be
happy to receive that has economic value would be covered. The rule
restricts only payments made to third parties (meaning someone other
than the lender or borrower), so a discount provided by the lender to
the borrower is not a problem.
So does that mean you cannot pay any type of fee to a third party?
Not at all–RESPA permits payments for “services actually
rendered” or performed. [24 CFR 3500.2(1))] This can get
complicated and has been the source of more than a few lawsuits over the
years. HUD has issued guidance as to what constitutes an allowable
payment, with two requirements: (1) the payee must perform sufficient
work to deserve a fee, and (2) the fee must be related to the work done.
The problem is that referring a customer to the lender, by itself,
is not compensable work in HUD’s opinion. The regulation states
that you cannot pay or be paid just to refer “settlement
service” [24 CFR 3500.2(b)] business (meaning any service provided
in connection with the loan, including making the loan itself). The
section is entitled, “No referral fees,” after all. Therefore
you cannot say a reward paid to someone who just refers the customer to
you meets either of HUD’s requirements for an allowable fee. No
work was done (outside of saying “go to this bank for your
loan–I’ll get something out of it,” which HUD says isn’t
compensable); therefore no fee can be reasonable for no work.
So watch your refer/reward promotions for residential real estate
loans. If the value provided is for nothing more than the referral,
it’s not permitted.
Carl G. Pry, CRCM, is a vice president and compliance manager in
consumer risk management for KeyBank, Cleveland. E-mail: Call
Carl_G._Pry@KeyBank.com
from WordPress http://bit.ly/1DHzGOR
via IFTTT
No comments:
Post a Comment