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#51568 - 01/02/03 03:58 PM
POC Helllpppppp!
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Hi, Can someone please help??? Our lenders are starting a referral program that any employees who refer people to our lenders and the loan closes, get a $25 fee from the bank (like a commission). Are they supposed to include this $25 charge as a "paid outside closing" cost? Of course, the CLO wants an answer yesterday! Thanks a lot.
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#51570 - 01/02/03 04:03 PM
Re: POC Helllpppppp!
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Power Poster
Joined: May 2002
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Near the Land of Enchantment
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Is the customer paying the $25? If not, I don't think it enters into your transaction with the borrower at all - it's an internal bank incentive. Other opinions?
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#51571 - 01/02/03 04:05 PM
Re: POC Helllpppppp!
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No, the bank is paying the fee, not the borrower.
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Get your facts first, then you can distort them as you please. - Mark Twain
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#51572 - 01/02/03 04:05 PM
Re: POC Helllpppppp!
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Joined: May 2002
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Near the Land of Enchantment
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David, you beat me to the continue button! Do you agree that it's not reportable unless the loan is subject to RESPA? I don't think this is a finance charge.
I'm still struggling over whether it's reportable even in a RESPA transaction. It's not really a sales commission, since it's paid internally to a bank employee.
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#51573 - 01/02/03 04:11 PM
Re: POC Helllpppppp!
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So, David, The borrower nor the seller are paying this commission, I'm still confused... Thanks
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Get your facts first, then you can distort them as you please. - Mark Twain
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#51574 - 01/02/03 04:12 PM
Re: POC Helllpppppp!
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Central City, NE
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In reply to:
No, the bank is paying the fee, not the borrower.
But we are to list appraisals that the bank does & doesn't charge the borrower (this has been discussed here many times). The HUD-1 instructions state to list ALL fees in connection with the loan as spelled out in §3500.7(a)(2):
For “no cost” or “no point” loans, the charges to be shown on the good faith estimate include any payments to be made to affiliated or independent settlement service providers. These payments should be shown as P.O.C. (Paid Outside of Closing) on the Good Faith Estimate and the HUD-1 or HUD-1A.
In reply to:
Does your answer change any if the loan is not subject to RESPA?
If the loan is not subject to RESPA, then there is no HUD-1. I'm sure I follow your question, but this is a mute issue if it is not subject to RESPA.
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#51575 - 01/02/03 04:14 PM
Re: POC Helllpppppp!
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Galveston, TX
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David, I guess I have to disagree. Are you stating that anytime a bank has a employee/loan officer/loan processor/underwriter on an incentive program, that any payment to that employee based on that loan has to be included on the HUD-1. I don't think even HUD contemplated including salary/commissions to lender employees??
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#51576 - 01/02/03 04:24 PM
Re: POC Helllpppppp!
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Joined: May 2002
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Sorry David, I edited while you were responding. Didn't mean to confuse the situation - the thoughts are coming in short, unconnected bursts this morning! Too much football yesterday, I guess.
Another thought - assuming that the bank disclosed it's fees on the HUD-1, and that the $25 would be paid from the fees the bank is collecting in the transaction, wouldn't disclosing the $25 separately be duplicate reporting?
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#51577 - 01/02/03 05:14 PM
Re: POC Helllpppppp!
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We haven't done this, but I don't see this as a cost "imposed" upon the buyer or seller if the bank didn't change its pricing.
If the pricing does change, then it could be considered a finance charge component for any loan.
I also worry about privacy issues in these situations. Referrals are often friends and relatives. The employee then knows if they are or are not credit worthy. These may be facts they have no need to know about.
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AndyZ CRCM My opinions are not necessarily my employers. R+R-R=R+R Rules and Regs minus Relationships equals Resentment and Rebellion. John Maxwell
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#51578 - 01/02/03 05:14 PM
Re: POC Helllpppppp!
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Joined: Aug 2002
Posts: 47,532
Bloomington, IN
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I never thought about this before, but HUD does require that all charges associated with the mortgage transaction be reported on the settlement statement, whether paid by the borrower, seller or lender. I saw no exemption for referral fees paid to employees.
After reading through the reg. and the other comments so for; (this is also based on my opinion that a referral fee is in fact a sales commission, not the type of sales commission associated with the sale of the property, but with the sale of the loan application, and although HUD’s intent may have been for sales commission to be associated with the sale of the property, I saw nothing that differentiated between the two types of sales commissions that could be associated with the loan transaction. )
1. If the referral fee is being paid from an Application Fee, Processing Fee, etc., then I would opine that the referral fee would not be disclosed as a separate item. As Lestie implied, this would be “double reporting” a charge.
2. If the fee is being expensed by the bank (as in our case we only charge a Doc Prep fee and a Title Examination fee), then I would opine that the referral fee should be disclosed as POC/L. It is in reality a fee paid in association with the loan transaction. I also agree with Lestie that this is not a finance charge because it is not being paid by the borrower.
Now, I would really like to find a good solid reference that would allow not disclosing this referral fee, because, as David said, “This is really getting stupid!”
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The opinions expressed are mine and they are not to be taken as legal advice.
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#51579 - 01/02/03 05:25 PM
Re: POC Helllpppppp!
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Thanks all of you! Keep them coming!
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Get your facts first, then you can distort them as you please. - Mark Twain
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#51580 - 01/02/03 05:47 PM
Re: POC Helllpppppp!
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Joined: Jul 2001
Posts: 83,370
Galveston, TX
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I would look to 3500.14 for guidance to indicate that the payment from a bank of a fee to an employee for an internal referral is not a settlement service and therefor would not be subject to reporting on a HUD-1 as relating to a settlement service:
(ix)(A) A payment by an employer to its bona fide employee for the referral of settlement service business to a settlement service provider that has an affiliate relationship with the employer or in which the employer has a direct or beneficial ownership interest of more than 1 percent, if the following conditions are met: (1) The employee does not perform settlement services in any transaction; and (2) Before the referral, the employee provides to the person being referred a written disclosure in the format of the Controlled Business Arrangement Disclosure Statement, set forth in appendix D to this part. (B) For purposes of this paragraph (g)(1)(ix), the marketing of a settlement service or product of an affiliated entity, including the collection and conveyance of information or the taking of an application or order for an affiliated entity, does not constitute the performance of a settlement service.
While this in reality deals with an affiliated business arrangement - why would this be any different if there was no affiliated business arrangement involved????? It is still a referral payment from the bank to it's own employee.
Don't make this worse than it is.
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#51586 - 01/02/03 07:37 PM
Re: POC Helllpppppp!
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Joined: Jul 2001
Posts: 83,370
Galveston, TX
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Just say HUD backwards three time and things will get better!
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#51588 - 01/02/03 08:52 PM
Re: POC Helllpppppp!
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Joined: Oct 2000
Posts: 40,086
Cape Cod
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Just don't ask Congress to spell it.
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#51589 - 01/02/03 09:14 PM
Re: POC Helllpppppp!
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Can't resist this oldie but a goody.
If Pro is the opposite of Con, what is the opposite of Congress???
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AndyZ CRCM My opinions are not necessarily my employers. R+R-R=R+R Rules and Regs minus Relationships equals Resentment and Rebellion. John Maxwell
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#51590 - 01/02/03 09:20 PM
Re: POC Helllpppppp!
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Joined: Aug 2002
Posts: 47,532
Bloomington, IN
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It's Progress
(didn't mean to have not is the orginal reply. I was thinking that progress is not a by-product of congress)
Last edited by dpersfull; 01/02/03 09:48 PM.
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#51592 - 01/03/03 12:51 PM
Re: POC Helllpppppp!
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Joined: Dec 2002
Posts: 40,766
Turnpike Exit 10
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Thanks rlcarey.
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Get your facts first, then you can distort them as you please. - Mark Twain
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