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

DIVISION OF CONSUMER
AND COMMUNITY AFFAIRS

CA 02-4

January 24, 2002

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

SUBJECT: Interagency Examiner Guidance on Settlement Service Markups under the Real Estate Settlement Procedures Act ("RESPA")

A recent Seventh Circuit Court of Appeals ruling¹ on the applicability of Section 8(b) of RESPA to certain real estate transactions will affect how examiners must now apply RESPA in the territory covered by the Seventh Circuit (the states of Illinois, Indiana, and Wisconsin). In response to this ruling, the Federal Financial Institutions Examination Counsel (FFIEC) developed interagency examiner guidance on settlement service markups under RESPA (see Attachment I).

The guidance explains that for loans subject to RESPA where the underlying real estate collateral is located in Illinois, Indiana, or Wisconsin, examiners should not cite violations of Section 8(b) where: (1) a consumer is charged more for a settlement service provided by a third party than is actually paid to the third party; and (2) the third party is not involved in the mark-up.

For example, a consumer is charged a $400 appraisal fee by a lender and the lender, after receipt of the $400, actually pays the appraiser $300. The lender would not be cited for violating Section 8(b) for retaining the $100 markup as long as the appraiser was not involved in the fee markup and did not receive benefits due to the markup. A violation would occur in this example, however, if the appraiser (the third party) performs the work, collects the entire $400 fee, and gives a portion, split, or percentage of the charge (the $100 markup) back to the lender, who accepts the fee without performing additional services.

Examiners should immediately implement the interagency guidance when reviewing loans for compliance with Section 8(b) of RESPA or the implementing regulation 24 CFR 3500.14(c). Examiners are reminded, however, that this guidance should be used in addition to, but not in place of, other applicable examination procedures and guidelines pertaining to RESPA.

If you have any questions regarding this RESPA matter, they should be directed to the review examiner assigned to your district or to Tracy Anderson at (202) 736-1921.

Sincerely,
(signed)

Suzanne G. Killian
Manager, Oversight

Notes:

^1.   In Echevarria v. Chicago Title & Trust Co., a title insurance company charged the Echevarrias a mortgage recordation fee of $45. The fee actually charged by the county recorder for this purpose was $31. The title insurance company retained the difference and the Echevarrias brought suit, alleging that the title insurance company violated Section 8(b). Because the county recorder received no more than its regular $31 fee and did not give or arrange for the title company to receive the unearned portion, the court concluded that the title insurer's $14 overcharge "was simply a windfall it kept for itself," and therefore did not violate Section 8(b).  Return to text

Attachment (39 KB PDF)