Add RESPA to List of Things the CFPB Is Serious About

Mortgage & Real Estate

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 KL 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.

COMMENT OF THE WEEK: Reader Steve Moller, can you please say what’s really on your mind? But we guess it is actually fairly clear what Mr. Moller, of, wants to convey. In response to our item on the Treasury being opposed to extending the HARP refi program, he writes, “This is absolutely ridiculous, and proves how far out of touch our government officials are. Ask any active originator—opening up the date from 05.31.09 to present would help hundreds of thousands of homeowners reduce their interest rate. Stegman is ignorant, or in the pocket of the major banks to oppose opening up the date. What would it hurt to try? It wouldn’t. It costs nothing to open up the date, and help those that need it, but they won’t. Ask yourself, who does this benefit, the homeowners underwater, or the banks that still hold those high interest rate notes? Do something, Stegman. It will cost nothing to open up the date. We are closing in on 5 years barring homeowners from improving their position. This needs to be lifted, now.” Got it!

MOST READ/E-MAILED CONTENT: Our readers seem to really enjoy reading about fraud and jobs (or lack of them). Our most-read item for the week was Brian’s item on the Consumer Financial Protection Board’s hefty $81,000 fine of a Missouri mortgage banker for paying referral fees, or, as the Bureau likes to call them, kickbacks. Holy RESPA, Batman! Does this kind of thing still go on after all the publicity about NOT paying Realtors for leads (better even think hard about taking a Realtor to lunch or bringing those boxes of donuts). Our most e-mailed content this week is a Bloomberg item on 950 mortgage heads rolling at the default department of Citigroup. Firings are like executions: they serve to focus your business attention. And our readers seem to like focusing on them (as long as it is not their head that has rolled).

BLOG OF THE WEEK: We liked Garth Graham’s take on what the mortgage industry can learn from the NSA (by the way we would like to say hi to our friends at NSA since we know they are reading this over our shoulders). Garth has a poetic way of putting things, so his take is that the mortgage industry should take a tip from NSA and start to do surveillance of its customers. He doesn’t actually mean black-bag surveillance or even tapping phones, phishing I-phones and stealing emails. He means it is wise for lenders to collect as much data as they can and use it to forestall trouble down the road. And this is the year when he thinks many of the old rules are going out the window, and new ones coming in.

VINER NATION: Though we have now enabled comments on essentially all of our content (and have gotten some great ones), we don’t want to forget our original commenters, the perceptive and not-shy denizens of What is on the Viners’ minds this week? CFPB? QM? ATR? More like the Super Bowl. And it is actually a fairly courteous thread, with much agreement that the upcoming Super Bowl, to be held in our neighborhood of East Rutherford, N.J., should be a good matchup. Seahawks? Broncos? We shall see!

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