Anti-kickback Settlements

by Mary Beth Guard, BOL Guru

A series of recent RESPA enforcement actions resulting in settlements of more than $2 million demonstrate HUD's commitment to stopping illegal referral fees and unearned fees.

The $2 million in payments stem from five recent settlements, and all settlement service providers would be well advised to learn from these examples. The violations targeted by HUD in these five cases were as follows:

• A finance company's commercial loan division funded floor plan inventories for mobile home dealers at reduced interest rates in exchange for referral of business for retail loans to buyers in land/home combination transactions. HUD asserted these volume-based referrals for discounts violated the anti-kickback provision of Section 8(a) of RESPA;





• A company and its subsidiaries provided flood determination services and tax services through contracts with lenders for reduced or no fees on existing loan portfolios in exchange for exclusive servicing of new loans. HUD alleged these transactions amounted to referrals of future business in violation of Section 8(a) of RESPA;





• A national lender overcharged hundreds of borrowers for credit report fees by passing on a higher fee for the credit report than the lender was actually charged, without providing any service in exchange for that higher charge. The overcharges were upcharges in violation of Section 8(b) of RESPA.





• A large builder and realty services company allegedly charged a percentage of the house sales price for closing costs. A portion of those funds was paid for certain closing costs, but another portion was retained by the company and not specifically accounted for. In addition, a $300 fee was added to buyers who chose to use their own title agent rather than the company's affiliate. HUD concluded that RESPA Sections 8(b) and 9 had been violated.





• A company violated Section 8 of RESPA, according to HUD, by providing free or reduced-cost portfolio reviews to lenders in exchange for those lenders referring future flood certification and portfolio monitoring review business to the company.

In the first eleven months of 2001, HUD entered into 38 other settlements with lenders for violations of the anti-kickback provisions of Section 8 of RESPA. The violations involve the referral of flood and tax servicing in exchange for free review of existing loan portfolios by tax and flood determination servicers. All 38 institutions were in New England, with the majority located in Massachusetts. Prepare now for the trend to move westward!

First published on BankersOnline.com 4/8/02.

Originally appeared in the Oklahoma Bankers Association Compliance Informer.