Seal of the Board of Governors of the Federal Reserve System

BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, D.C.  20551

DIVISION OF CONSUMER
AND COMMUNITY AFFAIRS

CA 01-2
Supercedes CA 92-17

April 4, 2001

TO THE OFFICERS AND MANAGERS IN CHARGE OF CONSUMER AFFAIRS SECTIONS:

SUBJECT: Referral of RESPA Violations to the Department of Housing and Urban Development (HUD)

The purpose of this CA letter is to outline the Board's process for referring to HUD violations of certain sections of the Real Estate Settlement Procedures Act (RESPA), implemented by HUD's Regulation X. Board staff will refer to HUD violations of the following sections of Regulation X: 3500.14; 3500.15; 3500.16; 3500.17; and 3500.21.

Reserve Bank Notification to the Board

Federal Reserve examiners have authority under the Federal Reserve Act to examine state member banks for compliance with RESPA and Regulation X. Therefore, when violations of RESPA and Regulation X are found during the course of compliance examinations, examiners should cite the violations in the report of examination and the state member bank should be directed to correct the practice. The Federal Reserve will refer violations of RESPA to HUD for its consideration of any enforcement action, including the assessment of civil money penalties.1

To accomplish this, Reserve Banks should inform their review examiners of RESPA violations in a letter transmitted separately from the report of examination no later than 10 days after the transmittal of the examination report to the state member bank. The notification should describe the following:

  • The date of the examination;
  • The acceptable cite (see Appendix A);
  • The nature of the practice;
  • The entities and persons involved;
  • The organizational structure and relationship of those involved;
  • The duration of the violations;
  • The number of violations and the number of accounts or consumers affected;
  • The sample size;
  • The cause of the violations(s);
  • The extent of managementís awareness of the applicable RESPA requirements;
  • A description of any actions taken by to rectify the situation and whether management corrected the practice (and when); and
  • Whether a file review was ordered.

In each case, Board staff will forward relevant information to HUD's RESPA enforcement group, which will keep the Board informed regarding the status and outcome of each referral. In turn, the Board will keep the Reserve Banks apprised. If a Reserve Bank has questions about whether specific violations of RESPA and Regulation X should be referred to HUD, they should contact their review examiner to discuss the details of the case. Reserve Bank staff should not initiate contact with HUD directly or refer cases to HUD without going through the referral process outlined in this CA Letter.

RESPA Violations Referred to HUD

Violations of the following sections of RESPA and Regulation X2 will be forwarded to HUD for consideration of appropriate enforcement actions:

Section 3500.14 - Anti-Kickback Provisions

12 USC Section 2607 of RESPA (Prohibition Against Kickbacks and Unearned Fees), as well as 24 CFR Section 3500.14 of Regulation X, prohibit compensated referrals of real estate settlement business. Any violation of 24 CFR Section 3500.14 or 12 USC Section 2607 is subject to the enforcement provisions outlined in 24 CFR Section 3500.19.

Prohibited referral fee arrangements occur in many ways but may often appear in banks that do not offer long-term mortgages. In such cases, customers inquire about a mortgage loan and are referred by the bank to a mortgage company (which may or may not be related to the bank). The mortgage company then pays the bank a referral fee, which may either be a percentage of the loan amount or a flat fee. Often, the bank does nothing more than make a referral, but in some cases, the bank may provide some assistance to the customer in completing the mortgage company's loan application. HUD has ruled that such referral arrangements may violate Section 8 of RESPA3. Although the payment of reasonable fees for services actually performed is not prohibited, HUD has determined that a party must perform some processing service beyond simply taking a mortgage loan application and referring the business to a lender in order to receive a fee for services rendered. HUD has also offered several other statements of policy4 addressing payments for services that may be found on the HUD website at www.hud.gov/offices/hsg/ramh/res/respapol.cfm .

Section 3500.15 - Affiliated Business Arrangements

An affiliated business arrangement is not a violation of Section 8 of RESPA and Section 3500.14 of Regulation X if the conditions set forth in Section 3500.15 of Regulation X are satisfied. If the conditions are not satisfied, the enforcement provisions outlined in 24 CFR Section 3500.19 may go into effect.

Section 3500.16 - Title Companies

This section requires any seller of property to be purchased with the assistance of a federally related mortgage loan to comply with Section 9 of RESPA. Section 9 prohibits a seller of property that will be purchased with the assistance of a federally related mortgage loan from requiring title insurance be purchased by the buyer from any particular title company as a condition of the sale. Any violations of Section 3500.16 shall be deemed to violate Section 9 of RESPA and shall be sanctioned by HUD as deemed appropriate.

Section 3500.17 - Escrow Accounts

Failure by a servicer to submit escrow account statements meeting the requirements of Section 3500.17 of Regulation X is also a violation of Section 10(d) of RESPA. For each violation, the HUD Secretary may assess a civil money penalty, which may be doubled if there is evidence of intent.

Section 3500.21 - Mortgage-Servicing Transfers

Section 3500.21 of Regulation X pertains to mortgage-servicing transfers and outlines the disclosure requirements and other responsibilities associated with such transfers. Various damages and costs can be assessed by HUD, depending upon whether actions involve an individual or a class action.

This referral process should enable the Board and HUD to more effectively monitor RESPA compliance trends Systemwide. Your assistance in providing timely and adequate referral information is appreciated. Any questions regarding this matter should be directed to the review examiner assigned to your district or to Tracy Anderson at (202) 736-1921.

Sincerely,
(signed)

Suzanne Killian
Manager, Oversight

Notes:

Attachment (522 KB PDF)

CA letters | 2001 Letters