RESPA Compliance Through the Lens of COVID-19, CFPB Leaders & Who’s Watching Violations
by Loretta Salzano
In an ongoing initiative to offer up expert commentary and opinion, we have turned to trusted Cook & James experts and other authorities in the past to blog about topics including cyber insurance, taxes, how to avoid surprises at the closing table, commentary on real estate trends, and most recently, an overview of the ins and outs of flood insurance. Nearly 18 months ago our friend and colleague Loretta Salzano, a RESPA attorney, wrote about RESPA compliance best practices and common pitfalls and we continue to get eyeballs on that post to this day so we asked her to give a refresher**. We hope you enjoy and benefit from her expertise as much as we do!
~ Kara Cook and Heather James
It is an understatement to say that much has changed in the world since my December 2018 blog unpacking RESPA Section 8. Even through the COVID-19 crisis we continue to receive a steady stream of questions from settlement service providers eager to find ways to work with and capture business from real estate professionals and other referral sources, which can be red flags for RESPA violations. To that end, I’m back to comment on three items since they are recurring themes in our day-to-day: the change in CFPB (Consumer Financial Protection Bureau) leadership and what it has meant for RESPA Section 8; who’s looking for RESPA violations; and opportunities in the current climate of shelter-in-place, isolation and quarantine.
CFPB change in leadership
The CFPB’s first director was Richard Cordray, a zealous consumer advocate known to target the mortgage industry. Director Cordray ignored the plain language of RESPA and decades of administrative guidance to forge a new law of RESPA “do’s and don’ts.” Under Director Cordray’s leadership the CFPB opted for “regulation by enforcement” instead of formal “notice and comment” rulemaking.
With Director Kathy Kraninger now at the helm (she was appointed when my first blog post went live, in December 2018), the CFPB has demonstrated its commitment to protect consumers. The Bureau now seems to be coloring within the lines instead of using enforcement to draw new lines. The CFPB is still out there actively supervising and investigating. It is also issuing regulations and guidance, but none yet have had RESPA Section 8 implications.
Who is stepping in and looking for RESPA violations?
Although the CFPB did not issue a public order on RESPA Section 8 last year, in November of 2019, the FDIC entered into a $1,350,000 settlement with a bank over its desk rental and online co-marketing arrangements with real estate brokers and builders. On the bright side, the FDIC made clear in its press release that “co-marketing arrangements and desk rental agreements are permissible where the fees paid bear a reasonable relationship to the fair market value of marketing or rental costs.” That’s as good as a green light for other marketing arrangements done right!
Both before and after Director Kraninger’s appointment, all depository regulators amped up their attention to RESPA. So did state mortgage and insurance regulators. Many mortgage regulators bolstered their exam questionnaire to ferret out RESPA violations. We’re even aware that some state regulators are trolling the internet as part of routine license approvals resulting in investigations of promotional events and other activities. Hard to believe, but treating a real estate agent to a cup of coffee could result in an inquiry!
What, then, are real estate professionals and other settlement service providers to do? My best guidance is to write your game plan and follow it. Thankfully, implementing appropriate policies and procedures to prove RESPA compliance can nip an investigation in the bud. That means more than talking the talk, you must walk the walk! You must put those policies and procedures into practice and have the records to prove it.
While you probably can do much of the heavy lifting on your own, leaning on others can be invaluable. An attorney can assess risk and document your arrangement. There are even experts to help determine value to keep you from paying an excessive amount which could be deemed an illegal referral fee.
Opportunities abound in today’s climate, so find your silver lining!
Self-containment and sheltering in place have created new markets and new marketing opportunities due in part to the expansion of electronic settlement services and remote closings. Many settlement service providers are implementing novel business practices in response to the COVID-19 crisis in which they can leverage into new marketing campaigns.
The onslaught of government initiatives has created a thirst and a demand for information. Our real estate industry is making rapid changes, sometimes daily. RESPA-compliant educational and promotional opportunities abound for those who become expert in and take advantage of this ever-changing regulatory landscape.
The bottom line? There are ample avenues for real estate professionals, builders, lenders, settlement agents and others to work together and market together. You just need to know where to draw the lines so no one else draws them for you.
**Comments in this post are presented for informational purposes only and are not intended to constitute legal advice.
Loretta Salzano is founding partner at Franzen and Salzano, P.C. whose practice includes RESPA-related matters and she is proud to work often with Cook & James. She brings more than 30 years’ experience to the real estate industry and advises banks, mortgage lenders, real estate brokers, title agents and other settlement service providers on how to stay within the confines of the laws of all 50 states and federal law including, but not limited to, TILA, RESPA, ECOA and HMDA. She was named a Top Compliance Lawyer by Mortgage Compliance Magazine, is a Fellow of the American College of Consumer Financial Services Attorneys, and serves as Legal Counsel to the Mortgage Bankers Association of Georgia and to Rainbow Village, a transitional housing program. She is active in many industry, professional and civic associations and frequently speaks on mortgage issues nationwide. Loretta received her B.A. with High Distinction from the University of Michigan and her J.D. from the University of Michigan Law School.