I recently attended a RESPA seminar given by Jack Holzknecht. After digesting the class, I began to rethink what we do regarding required service providers. We require the use of a particular flood vendor, credit bureau, and appraiser, as I'm sure most lenders do. We don't "require" the use of a specific title agent, but 95% of our title work goes to one particular person. In the seminar it was suggested that one way to handle this was to disclose this provider (a local attorney) as required. Here's where it gets tricky, the attorney in question is also a director of the bank. Per the reg we cannot require the use of a provider that we have an affiliated business arrangement with, unless they are our attorney, credit reporting agency or appraiser. This attorney is our banks attorney, but the service in question is title work. So, can we cover ourselves by disclosing this attorney as required or should we make it clear to the customers that this attorney is not required for title work, although most of our title work goes to him (the other option given at the seminar).

First look very carefully at how customers (or you) choose this attorney for settlement work. The critical issue here is that the customer makes the choice. The fact that customers tend to make the same choice is not conclusive.

If you are making any referrals, you would have to give the affiliated business arrangement notice and describe the relationship. That should cover you as long as the customer truly has choice.

Lucy- We don't require the use of a particular provider for title work. The concern is that since there is one provider that does most of our titlework, the inference of an examiner might be that we really do require use of this provider. Then the real heart of the issue is, if an examiner were to question this, how would we prove that we don't require use of the provider? Jack suggested in his seminar that one way to avoid the problem is to just go ahead and disclose them as a required service provider. Or to make it clear to customers, in some fashion, that use of this provider is not required even though they are used most of the time. So my confusion is that I am not sure that I can disclose them as being a required provider for titlework because we have an affiliated business arrangement with them.(§3500.7(e)(3)).

Because it is an affiliated business arrangement, you are on a tightrope. One option is Jack's advice. However, that isn't strictly necessary. What you probably should do is keep materials on training and procedures that clarify how customers are offered the choice. In other words, be prepared to prove your case. You can't really give a list of companies to applicants because that would constitute a referral.

A similar issue arises when a mortgage company takees applications and processes loans for an affiliate bank, or vice versa. You cannot force the borrower to use the affiliated lender, so what do you do when the borrower asks the "broker" to walk the application across the street to a competing bank?