'ADJUST' CREDIT LINES? DID YOU GET THIS EMAIL? YOU SHOULD SEE THIS!

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BUILDER/LENDERS - FREE BIG SCREEN ANYONE?

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REALTOR RELATIONSHIPS WITH HOME WARRANTY COMPANIES: HOW LEGAL IS IT?

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The question posed to me most often by Realtors is “What RESPA issues do I have with the compensation paid to me by the Home Warranty Company?”  I believe that the answer is very simple and is in no way ambiguous or misleading.  There are several questions that should be considered such as:

Is a Home Warranty Company (HWC) considered a settlement service? Is there a thing of value given by the HWC to the real estate agents? Is there an agreement or understanding between the HWC and the real estate agents? Can the agreement by the HWC, if they are classified as a settlement service, be construed as them giving something of value to the real estate agents for the referral of past, current, or future business? Section 8 provides two basic rules of prohibition. First, Section 8(a) prohibits the transfer of a thing of value pursuant to an understanding that business will be referred to any person.  (a) No person shall give and no person shall accept any fee, kickback, or thing of value pursuant to any agreement or understanding, oral or otherwise, that business incident to or a part of a real estate settlement service involving a federally related mortgage loan shall be referred to any person.  12 U.S.C. Sec. 2607(a).  Regulation X adds: Any referral of a settlement service is not a compensable service, except as set forth in Sec. 3500.14(g)(1).  A business entity (whether or not in an affiliate relationship) may not pay any other business entity or the employees of any other business entity for the referral of settlement service business. Section, Section 8(b) prohibits the splitting of any charge made or received for the performance of a settlement service except for services actually performed.    (b) No person shall give and no person shall accept any portion, split, or percentage of any charge made or received for the rendering of a real estate settlement service in connection with a transaction involving a federally related mortgage loan other than for services actually performed.  12 U.S.C. Sec. 2706(b).  Regulation X adds: A charge by a person for which no or nominal services are performed or for which duplicative fees are charged is an unearned fee and violates this section.  The source of the payment does not determine whether a service is compensable.  Nor may the prohibitions of this Part be avoided by creating an arrangement wherein the purchaser of services splits the fee.  24 C.F.R. 3500.14(c).          An HWC typically will be considered a settlement service provider on residential transactions involving federal related mortgages loans on new home warranty policies.  The question is whether home warranty renewal policies violate RESPA.  The answer is three pronged: I placed these concerns to HUD in a letter dated August 24th, 2007.  A mere six months later, on February 21, 2008 HUD responded with the following: Click here to download a copy of the HUD response letter. (PDF)

RESPA RULE CHANGES DELAYED

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We had hoped by this date to know what the New Respa Rules would be.  However-it looks like we will be waiting a little longer as HUD has partially granted the request of Congressional members by extending the comment period by another 30 days. 

The proposed rules released by HUD in March of this year were comprised of 96 pages—pretty easy reading.  However, this report was supported by a 263 page summary of the consumer testing that led HUD to make the proposed changes.  HUD provided another 30 pages of testing report summaries and peer reviews and of course no government regulation can be passed without a “Regulatory Impact Analysis” of the proposed rule which, in this case was only 590 pages.

Since the proposed rule is just that “a proposed rule” I have provided a Readers Digest version of the Cliff Notes to the proposed rule in the following single page.

The purpose of the proposed rule, which is entitled, “RESPA: HUD’s Proposed Rule to Simplify and Improve the Process of Obtaining Mortgages and Reduce Consumer Settlement Costs” primarily seeks to improve advance disclosure of firm and accurate settlement costs on page one of the Good Faith Estimate (GFE) in all Real Estate Settlement Procedures Act (RESPA) covered transactions via a “GFE application.” If adopted, the proposed rule also will:

·        Create a GFE form and facilitate required comparison between the GFE and the HUD-1/HUD-1A at closing to better ensure compliance with newly created tolerance limitations restricting the differences between estimated and actual costs of settlement services.

·        Not distinctly identify yield spread premiums (YSPs) in the GFE. Instead, YSPs will be included on the GFE in the origination charge.

·        At settlement, require that borrowers are read and provided with a copy of a “closing script” (the RESPA Miranda) explaining the final loan terms and settlement costs.

·        Address discounts by clarifying HUD’s current regulations and explaining when RESPA permits certain pricing mechanisms, such as volume discounts and average cost pricing, that benefit consumers.

·        Amend the definition of “required use” to include incentives for the use of a particular service provider (i.e., builder or home seller discounts for the use of an affiliated lender).

·        Clarify and update escrow account requirements and mortgage servicing transfer provisions.

·        Make clear that all RESPA disclosures may be provided to consumers in electronic form, so long as the consumer consents to receive such disclosures in electronic form and the other specific conditions of ESIGN are met. The proposed rule also will permit documents required to be retained under RESPA to be retained in electronic format, so long as the ESIGN requirements for document retention are met.

The proposed rule does not include the packaging or bundling stipulations that proved controversial in the 2002 and 2005 proposed rules. The proposed rule provides a 12-month transition period for compliance once finalized.

If the proposed rule is adopted, HUD estimates that consumers will save on average $518 to $670 per transaction. The industry folks that I have had extensive discussions believe that the additions of the “script” and delays associated with any changes will actually cost the consumers any where from $300 to $500 more per closing.

Comments on the proposed rule were originally due on May 13, 2008 which has now been pushed back to June 13^th (and I believe it will be pushed out farther).

HUD also announces in the proposed rule that it plans to seek legislative amendments to RESPA to obtain more enforcement authority, including civil money penalty authority and the ability to further amend current disclosures. HUD will seek civil money penalty authority for violations of RESPA Sections 4, 5, 6, 7, 8, 9 and 10 (provision of uniform settlement statement; GFE and special information booklet; servicing; prohibition against kickbacks, referral fees and unearned fees; title insurance and escrow accounts). HUD will also seek authority for HUD and state regulators to seek injunctive and equitable relief for violations of RESPA.

Other proposed legislative initiatives include requiring delivery of the HUD-1 settlement statement three days prior to closing, and creating a uniform and expanded statute of limitations applicable to governmental and private actions under RESPA.

 

(A complete copy of all of the documents mentioned here can be located in their entirety at www.hud.gov.)

 

Mortgage Fraud Update for Professionals

Real professionals in the mortgage and real estate industry have been very aware of the importance of compliance - not only to stay clear of fines and the true cost of breaking the laws - but to generate good will and build good business practices.

 

Now with "The Mortgage Bubble" in the news every day - fingers are being pointed across the industry and only with diligent knowledge and compliance, can the true professionals remain in business and serve their communities with fair and honest service.

 

We invite you to subscribe to our updates, sent to you each week, detailing the latest developments in our industry in general and compliance issues in particular. These free bulletins include access to webcasts and professional development training. The printable newsletter can be shared with your team and clients - to let them know that these are important issues and are important to your business.

 

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Green Leaf Lending Denies Allegations of Home Residential Refinancing Fraud

By James Comtois

Green Leaf Lending Inc., a California and Nevada licensed real estate brokerage firm, and John Nielsen, former president and owner of Green Leaf Lending, defendants in a mortgage fraud case brought by California attorney general Edmund G. Brown Jr., have “vehemently” denied the allegations in the state’s complaint, as well as the attorney general’s characterizations of their alleged conduct.

According to their attorneys, Brandon S. Reif, of the law offices of Brandon S. Reif, Mr. Nielsen and Green Leaf have filed a demurrer and a motion to strike attacking the attorney general’s complaint as legally deficient and uncertain.

The complaint centers on the allegation that the defendants actively participated in and engaged in a scheme to defraud consumers in the state of California out of millions of dollars through a home residential refinancing mass fraud involving “bait and switch” decoys.

The crux of the complaint is that defendant Eric Pony orchestrated a scheme to misrepresent the terms and rates of the loans, conceal exorbitant fees and commissions, and falsify and forge consumer documents for the purposes of benefiting only himself and certain of his family members, associates and entities, including escrow companies and their California-licensed notaries, all of whom Mr. Pony owned, operated, directed and/or controlled.

In the complaint, the attorney general claims that all of the defendants acted as the principal, agent, or representative of each of the other defendants and with the permission and ratification of each of the other defendants. The complaint further alleges that the defendants knew and realized that other defendants were engaged in such unlawful conduct yet facilitated the commission of those unlawful acts.

Mr. Reif, on behalf of his clients, said that these allegations and assertions are false.

“In its zeal to institute this action, the state filed a shotgun-style complaint to appease the public as a result of the mortgage crisis,” he said, adding that the state failed to fully investigate the facts pertaining to Green Leaf and Mr. Nielsen before making such false and misleading allegations against them.

Green Leaf and Mr. Nielsen were “defrauded and abused by the fraudster-defendants, not unlike the consumers on whose behalf the state is acting to safeguard and protect by prosecuting this action,” Mr. Reif added.

Though the state was likely aware that Green Leaf was victimized by the fraudster-defendants, too, the state “vilified” Green Leaf and its former principal Mr. Nielsen, even though all the papers supporting the state’s action, particularly the complaint and the supporting consumer declarations, reference only a few facts that fail to establish a cause of action against Green Leaf and Mr. Nielsen.

“My clients are also victims of the acts and deceit committed by Eric Pony, his sister, Paulette Pony, and his mother, Wilma Pony, and we will present to the court substantial evidence that will show that my clients have been wrongly accused,” said Mr. Reif.

“I am confident that we will lay out the evidence to demonstrate that my firm and I did not commit the acts that the attorney general has alleged and that our names will be cleared and our reputations restored,” said Mr. Nielsen.

 

A hearing on the case is scheduled for May 13.