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

DIVISION OF CONSUMER
AND COMMUNITY AFFAIRS

CA 02-2

January 10, 2002

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

SUBJECT: HUD's Statement of Policy 2001-1; Yield Spread Premiums to Mortgage Brokers

On October 18, 2001, the Department of Housing and Urban Development (HUD) published in the Federal Register its Statement of Policy 2001-1 (see attachment 1). This statement of policy is a clarification of HUD’s Statement of Policy 1999-1 (distributed in CA 99-8) (see attachment 2), which sets forth the agency’s position on the legality of lender payments to mortgage brokers in connection with federally related mortgage loans.

Statement of Policy 2001-1 was issued by HUD to eliminate ambiguities concerning the Department’s position on yield spread premiums (YSPs) and overcharges by settlement service providers. In issuing Statement of Policy 2001-1, HUD also clarified its interpretation of Section 8 of the Real Estate Settlement Procedures Act (RESPA) in Statement of Policy 1999-1 and reiterated its long-standing interpretation of the prohibitions of Section 8(b).

HUD’s position that YSPs are not illegal per se has not changed. The determination of the legality of YSPs remains dependent upon the application of HUD’s test in the 1999-1 Statement of Policy (as clarified in the 2001-1 Statement of Policy).

When determining the appropriate level of review for RESPA compliance, examiners should continue to apply the scoping procedures found in the Risk-Focused Consumer Compliance Supervision Program procedures (CA 01-3). Despite the regulation risk table reflecting lower risk levels for certain RESPA provisions (“1” for mortgage servicing transfer disclosure notices and “3” for all provisions except those rated “1” or “4”), specific mortgage lending activities of a bank (such as those outlined in HUD’s 2001-1 Statement of Policy) may necessitate the application of higher levels of review, depending on the bank’s level of applicable controls. Any violations of RESPA law or regulation should continue to be addressed in accordance with CA 01-2.

If you have any questions regarding this matter, please feel free to call the review examiner assigned to your district or Tracy Anderson at (202) 736-1921.

Sincerely,
(signed)

Suzanne G. Killian
Manager, Oversight

Attachments
Attachment 1 - Statement of Policy 2001-1 (1.4 MB PDF)
Attachment 2 - Statement of Policy 1999-1 (1.2 MB PDF)