Service Agreements Best Practices for Mortgage Lenders, Insurers, - - PowerPoint PPT Presentation

RESPA Sec. 8 Enforcement: CFPB Scrutiny

• f Settlement Fees, AfBAs and Marketing

Service Agreements

Best Practices for Mortgage Lenders, Insurers, Title Companies and Law Firms to Minimize Exposure

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WEDNESDAY, MARCH 4, 2015

Presenting a live 90-minute webinar with interactive Q&A Holly Spencer Bunting, Partner, K&L Gates, Washington, D.C. Heather C. Hutchings, Member, Dykema Gossett, Washington, D.C.

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RESPA SECTION 8 ENFORCEMENT

Holly Spencer Bunting K&L Gates holly.bunting@klgates.com Heather C. Hutchings Dykema Gossett hhutchings@dykema.com

CONSUMER FINANCIAL PROTECTION BUREAU

• EFTA
• ECOA
• FCRA
• GLB
• FDCPA
• HOEPA
• HMDA
• TIL
• RESPA
• SAFE Act
• FDIC
• INTERSTATE LAND

SALES Transfer of Existing Consumer Laws

CONSUMER FINANCIAL PROTECTION BUREAU

Enormous Powers

• 1. Authority for Numerous Statutes
• 2. Power to Write Rules

a.

Carry out purposes and objectives of federal consumer financial laws and prevent evasions thereof

b.

Mandate form/content of disclosures

c.

Identify unfair and deceptive practices

d.

Restrict pre-dispute arbitration

e.

Impose registration requirements

3.

Enforcement authority

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CFPB PACKS A WALLOP

Penalties

2. Enforcement authority beyond original statutes

a. Can launch investigations (C&D power) b. Can bring litigation c. Can conduct studies, collect information and make reports 1.

Nuclear arsenal of weaponry

a.

Including:

• Rescission
• Refunds
• Restitution
• Damages
• Unjust enrichment
• Public notification

CFPB PACKS A WALLOP (cont’d)

Penalties (cont’d)

3.

Civil $ penalties

• Up to $5,000 per day
• $25,000 per day for reckless violation
• Up to $1.0 million for knowing violation

RESPA ENFORCEMENT ACTIONS

1.

More than 60 total enforcement actions thus far by CFPB

a.

At least 16 of total actions involve RESPA

b.

Many RESPA actions carried over from HUD investigations

c.

Topics include:

• Affiliated business arrangements
• Captive mortgage reinsurance
• Rental of office space
• Splitting of fees
• Referral fees to salespersons
• GFE
• Marketing Services Agreement
• Lead generation/endorsements
• Free marketing services

RESPA ENFORCEMENT ACTIONS

• 2. CFPB sought to recover:

a.

Disgorgement of profits

b.

Civil money penalties

c.

Compliance monitoring and reporting

d.

Production of records

• 3. Payments to CFPB range from $30,000 to $24.0M

PMI & CAPTIVE REINSURANCE

Civil Action and Settlement

1. Allegation: PMI companies payments to Lender owned reinsurance companies were in excess of risk assumed by reinsurance companies 2. Three waves

• a. Genworth, United Guaranty, Radian, MGIC
• Collectively pay $15M
• Cease arrangements
• Enjoined from entering into new arrangements
• Submit to compliance monitoring and reporting
• b. Republic Mortgage Insurance Corp.
• Similar Consent Order
• $100,000 civil penalty
• c. CFPB v. PHH
• Civil lawsuit
• 3. All HUD referrals

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Paul Taylor Corp.

Affiliated Business Arrangement

1. Allegation: Paul Taylor owns interest in two joint venture mortgage

• companies. CFPB alleges they are shams.
• work performed by bank and mortgage company venturers
• no employees, no origination, processing, underwriting

2. CFPB relying on HUD 1996-2 Policy Statement 3. Taylor pays $118,194, full amount of distributions over 3 years

• Agrees to cease and desist for 5 years from owning another settlement

service provider (other than sale of homes)

4. FDIC referral

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Borders & Borders PLC

Affiliated Business Arrangement

1. Allegation: Law firm’s nine joint venture title agencies a sham

• did not have own offices
• email address, phone numbers
• single independent contractor did the title work
• no outside customers
• no attempt to get outside business
• much of work done by B&B

2. No settlement – CFPB files Civil Suit

• Disgorgement of all revenues
• Injunctions against B&B and its members

3. HUD referral

• B&B shut down jvs before CFPB started investigation

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Affiliated Business Arrangement Takeaways

1. RESPA expressly authorizes affiliated business arrangements, but they must be legitimate 2. Joint ventures are not prohibited, but they are risky. 3. Companies considering joint venture arrangements should ensure that concerns from HUD 1996-2 Policy Statement are addressed. 4. Is that enough?

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Realty South

Required Use/AfBA Disclosure

1. Allegation: Reality South’s Purchase Contract required use of Title South and Title South Closing Center

• AfBA disclosure language promoted and marketed affiliates
• Defective AfBA Disclosure Statement (font, capital lettering, format)

2. Realty South self-corrected Purchase Contract

• Now provide consumers a choice: select one of 2 boxes
• Title South or Other

3. Consent Order

• Realty South AfBA statement to mirror Appendix D of Reg X
• Revise training manuals to inform agents of no required use
• Civil money penalty of $500,000
• Produce all HUD-1s from errant Purchase Contracts

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Required Use/AfBA Disclosure Takeaways

1. Offer consumers a meaningful choice when presenting services

• ffered by affiliates.

2. Departure from disclosure formats set forth in regulations is not recommended.

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Fidelity Mortgage Corporation

Room/Desk Rentals

1. Allegation: Fidelity did not use space it leased from Bank and amount paid for rent was disguised referral payment

• Rent based upon revenues received by Fidelity from Bank
• $27,000 amount Fidelity paid to Bank in “rent”

2. Fidelity agreed to cease and desist activities

• Paid $57,000 civil money penalty

3. Bank not charged

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Room/Desk Rentals Takeaways

1. Payment must reflect fair market rent for the size and space provided. 2. Amount of business generated as a result of the desk rental should have no bearing on the cost to lease the space. 3. If you pay to rent space, use it!

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1st Alliance Lending, LLC

Section 8(b) Investigation

1. Allegation: 1st Alliance provided loss-mitigation financing to distressed borrowers. Hedge Fund funded these loans

• 1st Alliance paid Hedge Fund a split of monies earned on loans
• 1st Alliance continued to split fees with Hedge Fund even after it made
• ther financing arrangements in 83 deals

2. 1st Alliance discovers improprieties

• Self-reports to CFPB
• Fully cooperates in investigation
• Admits liability

3. Consent Order

• Paid civil money penalty of $83,000
• Agrees to comply with RESPA

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Stonebridge Title Services

Referral Fees/Fee Splits/Employee Payments

1. Allegation: Stonebridge paid referral fees to independent salespeople in return for soliciting and referring title insurance business to Stonebridge

• Received commissions for each title order based on value of title

insurance

• Salespeople paid on W-2 basis
• No supervision or control over salespeople; acted as independent

contractors

2. Consent Order

• Civil money penalty of $30,000
• Amount based on ability to pay

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Referral Fees/Fee Splits Takeaways

1. RESPA clearly prohibits the payment of referral fees and fee splitting arrangements. 2. If an arrangement contemplates payment where distinct services are not provided, it is probably a violation. 3. If an arrangement contemplates payment of a person who is not your employee for sending you business, it is probably a violation.

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Amerisave Mortgage Corporation

GFE/Affiliated Business Arrangement

1. Allegations: (RESPA only)

• Charged fees before providing consumers with GFEs
• Charged more than actual cost of credit report
• Did not disclose affiliation with AMC before scheduling appraisal and/or

charging fees

2. Consent Order (not directly tied to RESPA allegations)

• Payment of $14.8M for consumer redress
• Civil money penalty of $4.5M
• Civil money penalty of $1.5M for owner of company
• Agree to give AfBA disclosure before making a referral or at time of loan

application

• Engage Independent Consultant and provide compliance plan in

response to report of Independent Consultant for three years

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GFE/Affiliated Business Arrangement Takeaways

1. Put controls in place to prevent imposing charges prematurely. 2. Check your disclosure practices to ensure timely and accurate disclosure of fees and affiliated businesses. 3. Get ready for TRID.

23

Lighthouse Title

Marketing Services Agreements

1. First statement from CFPB on MSAs 2. Allegation: Lighthouse entered into MSAs with real estate companies and paid marketing fees in return for the referral of title business

• No determination or documentation of fair market value
• Payments based on referrals and what competitors were willing to pay

under MSA

• No verification that marketing services actually performed

3. Lighthouse agreed to end MSAs and refrain from entering into MSAs in the future

• Paid $200,000 civil money penalty
• Agreed to document all things of value given in excess of $5

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JPMorgan Chase/Wells Fargo

Marketing Services to Loan Officers

1. Allegations:

• Genuine Title purchased leads from a third-party vendor and provided

the leads to loan officers

• Genuine Title paid for marketing letters to be printed, folded, stuffed, and

mailed on behalf of loan officers

• Genuine Title made cash payments to the spouse of a loan officer

2. Consent Orders:

• JPMorgan Chase
• Civil money penalty of $600,000
• Restitution of $300,000
• Wells Fargo
• Civil money penalty of approximately $24M
• Restitution of $10.8M
• Civil money penalty of $30,000 for individual loan officer

25

NewDay Financial

Lead Generation/Endorsements

1. Allegations:

• NewDay agreement with veterans’ organization to be designated as

exclusive lender

• Email and direct mail advertisements sent to veterans promoting the

exclusive relationship and recommending use of NewDay for mortgages

• Promoted exclusive relationship to members during conversations and

website recommended NewDay as a source for home loans

• NewDay paid lead generation fees for each member that contacted

NewDay and applied for loans

• Paid relationship not disclosed to consumers

2. Consent Order:

• Civil money penalty of $2M

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MSA/Lead Gen/Endorsement Takeaways

1. Are MSAs dead?

• Carefully consider/reevaluate current arrangements for compliance.
• Structure new arrangements tightly.
• Independent valuation
• Documentation of services provided
• Keep marketing general
• Beware the exclusive designation

2. Keep lead gen separate

• Pay per lead, not on success
• Steer clear of endorsements

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