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:
- Rebecca J. Holtz, Director RESPA/ILS
Division, (202) 708-4560
- Kenneth A. Markison, Assistant General
Counsel for GSE/RESPA, (202) 708-3137
- Rodrigo Alba, Attorney, (202) 708-3137
FDIC staff members who can provide additional information
are:
- Ken Baebel, Senior Review Examiner in the Division of Compliance and Consumer Affairs,
(202) 942-3086, e-mail jbaebel@fdic.gov
- Rex Taylor, Counsel in the Legal Division, (202) 898-3733, e-mail Rextaylor@fdic.gov
- Susan VanDenToorn, Counsel in the Legal Division, (202) 898-8707, e-mail SVanDenToorn@fdic.gov
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Ronald F. Bieker
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Acting Director
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Attachments: March 1, 1999, Federal Register, Vol. 64,
No. 39, pages 10080-10087
HTML Format PDF Format (66 Kb - PDF
help or hard copy)
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).
