The Department of Housing and Urban Development (HUD) has issued the attached policy statement interpreting the level of services that mortgage brokers must perform in order to receive compensation from mortgage lenders. HUD's Statement of Policy 1999-1 took effect March 1, 1999. Compensation paid to mortgage brokers can be paid directly or indirectly by applicants, or received indirectly from lenders who fund the transaction through a table-funding process. These indirect fees received from funding parties are commonly referred to as "yield-spread premiums," "servicing-release premiums," and "back-funded payments." Section 8 of the Real Estate Settlement Procedures Act (RESPA) prohibits the payment of fees or any other "thing of value" for the referral of real estate settlement services. The origination of a mortgage loan is a settlement service, and the referral of a loan to another party in exchange for fees or other payments may violate Section 8. Violations of Section 8 are subject to both civil and criminal penalties. The policy statement notes that a number of lawsuits have been FILed contending that yield-spread premiums and similar fees are automatically a violation of Section 8 and lenders should be held liable for the violations. The policy statement indicates that payment of these fees is not illegal per se; however, payment may violate Section 8 of RESPA in some cases. For payment of these fees to be permissible under RESPA, sufficient goods or facilities must be provided or services performed to permit payment of compensation; and the amount of the total compensation paid to the mortgage broker must be reasonable in relation to comparable transactions within the same market. The policy statement also notes that while a broker may be compensated for goods or facilities actually furnished or services performed, the loan itself cannot be regarded as a "good" that the broker may sell to the funding party based upon the loan's yield in relation to market value (reasonable or otherwise). The policy statement has incorporated a prior informal position that HUD provided to the Independent Bankers Association of America (IBAA) by letter dated February 14, 1995. In the letter, HUD identified types of activities and services that are generally performed in the origination of a mortgage loan and provided guidance on the level of activities and services required in order to receive compensation for work performed as a mortgage broker. This policy statement is important to FDIC-supervised institutions when acting in the capacity of a mortgage broker as defined by the RESPA regulations. Institutions need to review their practices in accordance with the policy statement to ensure their procedures are in compliance with RESPA requirements. Institutions that do not review their procedures and arrangements with funding lenders may be exposing themselves to unnecessary liability. FDIC examiners will be reviewing table-funding arrangements during the course of future regular compliance examinations to ensure that institutions are complying with the requirements of the policy statement and RESPA. HUD staff members who can provide additional information are:
FDIC staff members who can provide additional information are:
Attachments: March 1, 1999, Federal Register, Vol. 64,
No. 39, pages 10080-10087
NOTE: Paper copies of FDIC financial institution letters may be obtained through the FDIC's Public Information Center, 801 17th Street NW, Room 100, Washington, DC 20434 (800-276-6003 or (703) 562-2200). |