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#1990799 - 01/23/15 08:50 PM
ABA Disclosure Affiliate vs. Tolerance Affiliate?
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Platinum Poster
Joined: Oct 2005
Posts: 667
Sioux Falls, SD
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So here’s one to chew on… you’re allowed to let the customer shop for 3rd party services. Shopping means you provide them a list and allow them to choose a recommended provider from your list or a qualified provider not on your list. You’re also allowed to recommend and list your affiliate. Disclosing your affiliate on the shopping list will trigger the RESPA Affiliated Business Arrangement Disclosure [1024.15]. It may also trigger a higher tolerance threshold, in some cases. Generally, the 3rd party charge paid to an affiliate will be subject to 0% tolerance [1026.19(e)(3)]. However, if you didn’t notice we’re now dealing with two different regulations. In fact we’re dealing with two different definitions of an affiliate.
RESPA states that an affiliated business arrangement exists when:
…a person who is in a position to refer business incident to or a part of a real estate settlement service involving a federally related mortgage loan, or an associate of such person, has either an affiliate relationship with or a direct or beneficial ownership interest of more than 1 percent in a provider of settlement services; [12 U.S. Code § 2602 via 1024.15(c)]
TILA (Integrated Disclosures) states:
For purposes of this chapter, the term “affiliate” means any company that controls, is controlled by, or is under common control with another company. Any company has control over a bank or over any company if the company directly or indirectly or acting through one or more other persons owns, controls, or has power to vote 25 per centum or more of any class of voting securities of the bank or company… [12 U.S. Code § 1841 via OSC to 1026.19(e) and 1026.32(b)]
So, could it be that I have to provide an Affiliated Business Arrangement Disclosure for a referral to an affiliate but not be subject to a 0% tolerance? For example I have a 10% ownership/voting power in a title company. It exceeds the RESPA 1% threshold but not the TILA 25% threshold?
At the end of the day other than being confusing for bankers it actually provides more grace toward the banker that deals with affiliate relationships beneath the 25% threshold.
Thoughts or opinions?
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#1990879 - 01/25/15 06:20 PM
Re: ABA Disclosure Affiliate vs. Tolerance Affiliate?
Jerod Moyer
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Junior Member
Joined: Jul 2013
Posts: 47
Washington, DC MSA
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This makes my head hurt. If the affiliate is not listed as a provider under the GFE/Loan Estimate providers, wouldn't it be 100% tolerance (no limits) if the customer selects the affiliate though not listed?
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#1991484 - 01/27/15 08:03 PM
Re: ABA Disclosure Affiliate vs. Tolerance Affiliate?
Jerod Moyer
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Junior Member
Joined: Jul 2013
Posts: 47
Washington, DC MSA
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So, simply put, regardless of the borrower shopping circumstances, if the ownership of the affiliate is 25% or greater there is no tolerance change?
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#1991575 - 01/27/15 10:01 PM
Re: ABA Disclosure Affiliate vs. Tolerance Affiliate?
Jerod Moyer
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Junior Member
Joined: Jul 2013
Posts: 47
Washington, DC MSA
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"Required third party" (you can't shop for because it's required) vs a 3rd party (which may be an affiliate) but which you can shop for service seem to contradict?
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#1993154 - 02/03/15 06:31 PM
Re: ABA Disclosure Affiliate vs. Tolerance Affiliate?
Jerod Moyer
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Platinum Poster
Joined: Nov 2007
Posts: 767
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Couple of questions to add here:
This is a bit confusing. If you do not allow applicants to shop, then you are not allowed to force them to use your affiliate title company, right?
If affiliate is owned by a 10% holding, then it is permissable to force the customer to use this title company but you must provide the affiliated business disclosure?
_________________________
Comments are strictly my own and not that of my employer.
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#1993203 - 02/03/15 08:59 PM
Re: ABA Disclosure Affiliate vs. Tolerance Affiliate?
Jerod Moyer
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Member
Joined: Jan 2014
Posts: 83
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Where can I find the cite that prohibits the use of an affiliate title insurance company if the borrower is not allowed to shop? Is this a new requirement or is it a change with the Integrated Disclosure rules?
I need something to support my opinion when I pass this along.
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#1993278 - 02/04/15 01:37 PM
Re: ABA Disclosure Affiliate vs. Tolerance Affiliate?
Jerod Moyer
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Platinum Poster
Joined: Nov 2007
Posts: 767
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Sorry to keep asking, but I am struggling to understand. Did I mention that we currently do not allow borrowers to shop...
Jerod, you said we cannot require the use of an affiliate...does this mean even if they are an attorney? I am in an internal debate over this issue and it would be helpful if I could point to the exact language concerning prohibitation of using affiliate.
RESPA says you are allowed to require the borrower to use your "attorney". Would we not be ok to require use of affiliate (title company) for performing the title search and settlement fee?
Would it then not be the responsibility of our affiliate to provide notice that the borrower can shop for Title Insurance?
Or would we be required to list that they CAN shop for Title Insurance and provide Written List of Settlement Providers?
Thank you in advance for helping me understand this!
_________________________
Comments are strictly my own and not that of my employer.
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#1993292 - 02/04/15 02:54 PM
Re: ABA Disclosure Affiliate vs. Tolerance Affiliate?
Jerod Moyer
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10K Club
Joined: Aug 2002
Posts: 47,530
Bloomington, IN
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RESPA has always prohibited the required use of an affiliate if the borrower must pay for the service. The exception being referred to is the lender's use of a CRA, appraiser or an attorney to represent the bank's interest. If the attorney is underwriting the title insurance then the attorney is representing the interest of the title insurance provider; and under certain circumstances the attorney would also be required to provide an AfBA disclosure in addition to the one provided by the lender. The following are from a Google search. http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/ramh/res/respamorExcept in cases where a lender refers a borrower to an attorney, credit reporting agency or real estate appraiser to represent the lender's interest in the transaction, the referring party may not require the consumer to use the particular provider being referred. http://www.frascona.com/resource/jag_daf705respa2.htm (2) The consumer is not required to use any particular provider of settlement services (that is, the consumer is not steered or required to use an affiliated entity providing mortgage or other settlement services); http://www.hud.gov/offices/hsg/rmra/res/resparulefaqs422010.pdf11) Q: May a loan originator require the use of its affiliate for the tax service or flood certificate? A: No, a loan originator may not require the use of its affiliate for tax service or flood certificate, but a loan originator may require the use of a non-affiliated provider. https://www.fdic.gov/regulations/compliance/manual/pdf/V-3.1.pdfThe loan originator may not require the use of such a provider, with the following exceptions: the institution may require a buyer, borrower, or seller to pay for the services of an attorney, credit reporting agency, or real estate appraiser chosen by the institution to represent its interest.
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The opinions expressed are mine and they are not to be taken as legal advice.
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#1993307 - 02/04/15 03:27 PM
Re: ABA Disclosure Affiliate vs. Tolerance Affiliate?
Jerod Moyer
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Platinum Poster
Joined: Nov 2007
Posts: 767
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Thank You Dan and others for responding....
Last edited by Still Smiling; 02/04/15 03:27 PM.
_________________________
Comments are strictly my own and not that of my employer.
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#2034826 - 08/20/15 02:54 PM
Re: ABA Disclosure Affiliate vs. Tolerance Affiliate?
Jerod Moyer
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Member
Joined: Apr 2008
Posts: 60
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We own 3% of a title company and have always proceeded as if they are an affiliate and provided the affiliated disclosure. Would they fall into the 0 tolerance or 10% (it will be on our service provider list)? I'm guessing 0 tolerance, but just thought I would check:)
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#2034848 - 08/20/15 03:28 PM
Re: ABA Disclosure Affiliate vs. Tolerance Affiliate?
Jerod Moyer
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10K Club
Joined: Oct 2000
Posts: 40,086
Cape Cod
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Go back up to the first post in this thread. Your ownership of 3% of the title company does not make it an affiliate for the purposes of the good faith estimate tolerances, even though you will have to provided an AfBA disclosure under RESPA. You can't require the use of their services.
Last edited by John Burnett; 08/20/15 03:31 PM.
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John S. Burnett BankersOnline.com Fighting for Compliance since 1976 Bankers' Threads User #8
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#2055094 - 12/19/15 03:22 AM
Re: ABA Disclosure Affiliate vs. Tolerance Affiliate?
John Burnett
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Gold Star
Joined: Sep 2001
Posts: 445
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Jerod related “However, the selection of an affiliate by the borrower would trump the unlimited tolerance and subject it to a 0% tolerance in this scenario provided the affiliate relationship meets or exceeds the 25% threshold as discussed above (as long as you buy that argument!).â€
But if the Bank’s affiliate is under 25% ownership and is not on the written provider list, and the Bank provides the Affiliated Business Arrangement Disclosure, is it a 10% or unlimited tolerance if the borrower chooses to use the affiliate that was not on the provider list.
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#2055102 - 12/19/15 12:57 PM
Re: ABA Disclosure Affiliate vs. Tolerance Affiliate?
Jerod Moyer
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10K Club
Joined: Jul 2001
Posts: 83,363
Galveston, TX
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How can you make a referral to an affiliate business that triggers the disclosure and not have them on your provider list??
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The opinions expressed here should not be construed to be those of my employer: PPDocs.com
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#2055135 - 12/21/15 03:45 PM
Re: ABA Disclosure Affiliate vs. Tolerance Affiliate?
rlcarey
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Gold Star
Joined: Sep 2001
Posts: 445
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The Commentary explains that 1026.19 doesn’t prohibit creditors from including affiliates on the written list; but if creditors do, this action will trigger the Affiliated Business Arrangement Disclosure because including it makes it a “referral†under RESPA. Therefore, let’s say the bank makes a referral regarding an affiliate (defined as an affiliated only under RESPA and not TIL) and provides the Affiliated Business Arrangement Disclosure; but the bank does not include the affiliate on the provider list, reflecting another provider other than the affiliate. If the borrower chooses the affiliate for the settlement service, does that place the affiliate in the unlimited tolerance category since the affiliate was not on the provider list?
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#2055255 - 12/22/15 01:03 PM
Re: ABA Disclosure Affiliate vs. Tolerance Affiliate?
Jerod Moyer
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10K Club
Joined: Jul 2001
Posts: 83,363
Galveston, TX
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I will again ask: How can you make a referral to an affiliate business that triggers the disclosure and not have them on your provider list??
_________________________
The opinions expressed here should not be construed to be those of my employer: PPDocs.com
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#2055381 - 12/22/15 07:35 PM
Re: ABA Disclosure Affiliate vs. Tolerance Affiliate?
Jerod Moyer
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10K Club
Joined: Aug 2002
Posts: 47,530
Bloomington, IN
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If the borrower chooses the affiliate for the settlement service, does that place the affiliate in the unlimited tolerance category since the affiliate was not on the provider list?
1026.19(e) will give you your answer.
(3) Good faith determination for estimates of closing costs.
(ii) Limited increases permitted for certain charges. An estimate of a charge for a third-party service or a recording fee is in good faith if:
(B) The charge for the third-party service is not paid to the creditor or an affiliate of the creditor; and
_________________________
The opinions expressed are mine and they are not to be taken as legal advice.
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#2136131 - 06/27/17 08:58 PM
Re: ABA Disclosure Affiliate vs. Tolerance Affiliate?
lucyc
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Diamond Poster
Joined: Oct 2015
Posts: 1,669
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My understanding is that for Question 1 the Answer is that if you allow the borrower to shop and they just randomly chose to use the firm owned by the Bank Director, then the fees would be subject to an unlimited tolerance standard. However, for the QM Points and Fees testing you would still be required to include the amounts paid to the affiliate.
For Question 2 the Answer would be that if you allow the borrower to shop and they choose your Affiliate provider, then such fees would be subject to a 0% tolerance standard. The thought being that if it is an affiliate of the lender, then the lender should know exactly how much services should cost for that loan.
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#2136137 - 06/27/17 09:22 PM
Re: ABA Disclosure Affiliate vs. Tolerance Affiliate?
Jerod Moyer
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10K Club
Joined: Jul 2001
Posts: 83,363
Galveston, TX
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Required service + affiliate = 0% tolerance
_________________________
The opinions expressed here should not be construed to be those of my employer: PPDocs.com
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#2136229 - 06/28/17 03:36 PM
Re: ABA Disclosure Affiliate vs. Tolerance Affiliate?
Jerod Moyer
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10K Club
Joined: Oct 2000
Posts: 40,086
Cape Cod
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If the service is listed in Section C (services borrower can shop for) on the loan estimate, and the lender includes a provider for the service on the SPL ---
1. The tolerance limit will be "no limit" if the borrower selects a provider that is both not an affiliate of the lender and not on the SPL for that service.
2. The service will be included in the 10% tolerance limit group if the borrower selects the provider on the SPL if the provider is not an affiliate of the lender
3. The service will be subject to a 0% tolerance if the selected provider is an affiliate.
_________________________
John S. Burnett BankersOnline.com Fighting for Compliance since 1976 Bankers' Threads User #8
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