BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, D.C. 20551
DIVISION OF CONSUMER
AND COMMUNITY AFFAIRS
CA 99-20
December 15, 1999
TO THE OFFICERS AND MANAGERS IN CHARGE OF CONSUMER AFFAIRS SECTIONS:
SUBJECT: Potential RESPA issues in joint venture applications
The purpose of this letter is to provide guidance to Reserve Bank staff who may periodically receive Section 4 applications from bank holding companies to form "Joint Ventures" with third parties for the purpose of engaging in real estate mortgage origination activities. Board staff has recently reviewed several such applications that raised questions about compliance with the Real Estate Settlement Procedures Act (RESPA). Staff consultation with representatives of The Department of Housing and Urban Development (HUD), the agency with interpretive authority for RESPA, provided insight into RESPA compliance issues related to affiliated business arrangements, sham business arrangements, kickbacks and unearned fees.
As a result, Attachment I was developed as a tool for Reserve Bank staff to use when performing an initial review of a proposed Joint Venture to determine if the application raises concerns about compliance with RESPA.
Since enforcement of RESPA ultimately lies with HUD and there is little written guidance on these issues, Reserve Bank staff should contact either Beverly Smith, Manager of Applications (202-452-3946), or Tracy Anderson (202-736-1921) in Compliance Oversight at the Board when they are concerned that the proposed structure may violate RESPA. Board staff will consult with HUD if necessary. You may also contact Ms. Smith with any questions concerning the processing of Joint Venture applications.
We hope that this guidance will better assist Reserve Bank staff in reviewing these types of transactions.
Sincerely,
(signed)
Shawn McNulty
Assistant Director