RESPA or Real Estate Settlement Procedures Act-SECTION 8

Section 8 then goes on to state that the RESPA is not intended to prohibit the payment of fees to attorneys, title companies, or agents for service actually performed, the payment of a bona fide salary or compensation to a person for goods or products actually furnished or services actually performed in the making of a loan, and payments pursuant to cooperative brokerage and referral arrangements or agreements between real estate agents and brokers. Nor is RESPA intended to prohibit controlled business arrangements (common ownership existing between the lender and providers of settlement services) so long as certain disclosures are made and the borrower is not required to use the affiliated provider for settlement services. 12 USC 2607(c). In determining whether a given fee is legal under RESPA, the Statement uses a two-step test. First, the goods or facilities must actually be furnished or the services actually performed for the compensation paid. Second, the payments must reasonably be related to the value of the goods or facilities being provided or the services being performed. If either test is not met, the payment is considered to be for a referral pursuant to an agreement and thus a violation of Section 8. In applying the test:

HUD Statement of Policy 1999-1 (March 1, 1999)

HUD believes that total compensation should be scrutinized to assure that it is reasonably related to goods, facilities, or services furnished or performed to determine whether it is legal under RESPA. Total compensation to a broker includes direct origination and other fees paid by the borrower, indirect fees, including those that are derived from the interest rate paid by the borrower, or a combination of some or all. The department considers that higher interest rates alone cannot justify higher total fees to mortgage brokers. All fees will be scrutinized as part of total compensation to determine that total compensation is reasonably related to the goods or facilities actually furnished or services actually performed. HUD believes that total compensation should be carefully considered in relation to price structures and practices in similar transactions and in similar markets." HUD Statement 1999-1, Section A.

• In determining whether payments are for referrals or for services actually performed, HUD has identified the following services normally performed in the origination of a loan:"
• (a) taking information from the borrower and filling out the loan applications;
• (b) analyzing the prospective borrower's income and debt and pre-qualifying the prospective borrower to determine the maximum mortgage the propsective borrower can afford (counseling);
• (c) educating the prospective borrower in the home-buying and financing process, advising the borrower about the different types of loan products available, and demonstrating how closing costs and monthly payments could vary under each product (counseling);
• (d) collecting financial information (tax returns and bank statements) and other related documents that are part of the application process (counseling);
• (e) initiating/ordering VOE's (verification of employment) and VOD's (verification of deposit);
• (f) initiating/ordering requests for mortgage and other loan verifications;
• (g) initiating/ordering appraisal;
• (h) initiating/ordering inspections and engineering reports;
• (i) providing disclosures (truth in lending, good faith estimates, others) to the borrower;
• (j) assisting the borrower in understanding and clearing credit problems (counseling);
• (k) maintaining regular contact with borrowers, real estate professionals, and lenders between application and closing to appraise them of the status of the application and gather any additional information as needed(counseling):
• (l) ordering legal documents;
• (m) determining whether the property was located in a flood zone or ordering such service; and
• (n) participating in the loan closing.

HUD Statement of Policy 1999-1, Section C. HUD has stated that it would be satisfied that sufficient origination work had been performed to justify a fee if the agent or contractor took the application information (a., above) and performed at least five additional items from the above list. HUD Statement of Policy 1999-1, Section C. In our example, the Participants are providing settlement services that fall under items b, c, d, j, and k. Normally, if any five are provided, HUD would be satisfied sufficient work had been performed to justify compensation. However, since only "counseling type" services are being performed (designated by HUD as b, c, d, j, and k from the above list) HUD, in order to determine that meaningful counseling rather than steering has taken place, will be satisfied only if the following also occur:

• But any "six services" are not enough. An originator who provides only "counseling type" services must also satisfy the following:
• (1) counseling gave the applicant the opportunity to consider products from at least three different lenders;
  
• (2) the entity performing the counseling would receive the same compensation regardless of which lender's products were ultimately selected; and
• (3) any payment made for the 'counseling type' services is reasonably related to the services performed and not based on the amount of loan business referred to a particular lender."