Subsidiaries & Section 8

Posted By: Compliance Poster

Subsidiaries & Section 8 - 12/06/15 11:25 PM

I have a corporation that owns two subsidiaries, the bank and a mortgage broker business. The bank will close the Note in its name and fund the mortgages it originates. The Bank will charge the borrower an origination fee. The bank intends to forward the loan application to its mortgage broker affiliate to process the application (create the early disclosures, order the appraisal, order the flood determination, create the closing documents, etc.) of which there will be a separate fee to the affiliate charged to the borrower. The Bank intends to collect servicing release fees or yield spread premiums after the loan is sold into the closed. The corporation intends to peel away a pre-arranged percentage of the bank’s origination fee on each loan as income after each loan closes.

I believe there should be an Affiliated Business Arrangement Disclosure Statement from the bank to applicants regarding the mortgage broker affiliate’s application. My main concern is regarding Section 8 and the impact of the affiliate relationships. Ordinarily, I would be alarmed if the bank was doing enough work to justify its fee, since the mortgage broker business is doing so much of the processing. Would you please let me know if my concern if justified, if the affiliate relationship makes a difference? Also, would the plan of the parent corporation have any impact within RESPA as to Section 8 either, or if there is an exemption if it qualifies as a return on an ownership interest or franchise relationship?
Posted By: rlcarey

Re: Subsidiaries & Section 8 - 12/07/15 01:24 PM

You have a number of issues. Unearned fees, affiliate business disclosures, and illegal payments to the holding company. You really need to get a skilled attorney involved.
Posted By: Compliance Poster

Re: Subsidiaries & Section 8 - 12/09/15 07:21 PM

Randy, I appreciate the advice.
Posted By: respalawyer

Re: Subsidiaries & Section 8 - 12/10/15 02:05 AM

There are a myriad of areas you would have to take a look involving the business structure and operation to ensure compliance with 8(c)(4) of RESPA. The easiest answer though is YES you would need to have an AfBA disclosure form in place. AfBA structuring, especially a Bank owned Mortgage Broker operation,can be complex and you have a lot of areas to analyze.
Posted By: fretzer

Re: Subsidiaries & Section 8 - 07/10/18 09:38 PM

I'd like to add to this string and ask a question regarding affiliates.

If a bank has an insurance affiliate and mortgage customers may be referred to the insurance affiliate for homeowner's insurance, would this be covered under RESPA?

The insurance affiliate is not used for title insurance, so we're under the assumption that homeowner's insurance referrals would not come into play here, but want to make sure.

Thank you!
Posted By: Adam Witmer

Re: Subsidiaries & Section 8 - 07/11/18 11:49 AM

Well, homeowner's insurance is included in the definition of a settlement service:

3500.2(b) Settlement service means any service provided in connection with a prospective or actual settlement, including, but not limited to, any one or more of the following:

(11) Provision of services involving hazard, flood, or other casualty insurance or homeowner's warranties;
Posted By: fretzer

Re: Subsidiaries & Section 8 - 07/11/18 07:54 PM

Thanks! Yes, it is a required service. Since it is an affiliate does it have to be disclosed on the ABA form?
Posted By: Adam Witmer

Re: Subsidiaries & Section 8 - 07/12/18 02:07 AM

Yes. If you don't appropriately provide the ABA form, it would be a Section 8 Violation.

From RESPA 1024.15:
(b) Violation and exemption. An affiliated business arrangement is not a violation of section 8 of RESPA (12 U.S.C. 2607) and of §1024.14 if the conditions set forth in this section are satisfied.