page contents Mortgage News Digest: January 2014

Friday, January 31, 2014

Beware of Pirated Manuals

Recently we have received a large number of calls from clients whose policy and procedures manuals are outdated. They are being rejected by their lenders, investors or regulators. Speaking to the customer we learned something shocking.  They recently purchased the products from a consultant who assured them that the product was current.  Not only were the products outdated, but they were stolen, so did not qualify for any warranty or service.

Here's how it happens.  A client orders a product, but they don't want the normal information services we give to customers.  We call and make sure they understand the license - that it can't be transferred - and they state they understand: it's only for their own purposes.  We have a reason we don't sell to consultants - they pirate our product and then don't stand behind it.

Who pays the price?


You do.  You buy a product which was good at the time, but 1/2 year later it is outdated.  You submit your product to an investor, regulator or wholesaler and now you look like you don't know what you are doing. Worse than the wasted time and prestige, you now likely have to fix the problem on your own.

Make Sure Your Product is Not Pirated


Questions to ask:

Is the consultant in the regular business of providing materials, or did the product emanate from a request from you?  If it's not something the consultant does as a main line of business, it is more likely that the consultant borrowed the product from another company.  Beware.
Does the consultant publish examples and samples of the work online?  If the consultant is overly protective of the content before you purchase it, it is likely that the work would be similar to other widely available products, or that it is, in fact, another company's work.  Legitimate companies don't need to hide their content, because they know it changes so much that even if you did borrow a swath of it, you would have to come back for updates later.
Are you getting e-mails from the publisher? Or is there silence after the purchase.  If it's the company's mainline business there is always a stream of information (welcome or not) that accompanies this type of purchase.


Friday, January 17, 2014

The Anti-Kickback Rule - Payment or Receipt of Non-Approved Fees

Background


With the recent spate of enforcement actions surrounding kickbacks, take the time to re-visit your explicit policies and procedures surrounding the anti-kickback rules.

4/30/2015 - Updated filing shows actual money penalties by participants
1/22/2015 - Baltimore CFPB Action
St. Louis CFPB Action
Kentucky CFPB Action
Baltimore Referral Fee Lawsuit

Kickbacks are a problem because they tend to inflate the cost of a transaction.
Kickbacks tend to inflate the cost to the consumer due to the fact that someone else has to get paid for the referral. 


Prohibited - Kickbacks and Referral Fees


Section 8(a) of RESPA prohibits anyone from giving or receiving a fee, kickback, or “anything of value” pursuant to an “agreement or understanding” for the referral of business related to the purchase or financing process. The purpose of the prohibition is to protect consumers from the payment of fees when no additional work is actually performed. Kickbacks tend to increase the cost of the transaction, since the borrower will have to be charged more in order to cover the cost of the referral fee.

All personnel should avoid even the appearance of accepting or paying for non-approved services.

An “Agreement or Understanding” does not have to be a formal agreement, but can be a verbal agreement or even an agreement established through a practice, pattern, or course of conduct.

Prohibited Payment – “Anything of Value”


Payments include, but are not limited to



  • A “Thing of Value”
  • Money
  • Discounts
  • Commissions
  • Salaries
  • Stock
  • Opportunities to participate in a money-making program
  • Special or unusual banking terms
  • Tickets to theater or sporting events
  • Services of all types at special rates
  • Trips and payments of another’s expenses

Prohibited - Fee Splitting 


Fee splitting is when a service provider inflates charges and splits the excess funds with another service provider in exchange for the referral of business.  This is tantamount to a kickback and is a prohibited practice.  Service providers may attempt to circumvent this prohibition by establishing joint ventures or entering into business arrangements that allow referrals between organizations and conceal the fee splitting arrangement.

Permitted – Approved Affiliated and Controlled Business Arrangements


In some cases, there can be fee splitting or referral fees paid under what is known as an “affiliated business arrangement”.  An affiliated business arrangement is where a person who refers settlement services has an “affiliate relationship” or “an ownership interest of more than one percent in a provider of settlement services.”

The payment of reasonable fees is acceptable as long as the relationship is disclosed to the borrower and the referrer actually performs a service – or somehow adds value.  The referral service provider may NOT be a REQUIRED provider of services, such as an appraiser or credit bureau that the lender must select.  An affiliate relationship structured simply to legitimize the payment of a fee is referred to as a “sham”. Affiliates must be a “Bona Fide Provider of Services” to receive a referral fee legally.

Approval Required - Desk Rental Arrangements


Because of the level of oversight, and the potential for the payment of desk rental to masquerade as payment for a referral, all Desk Rental Arrangements must be approved in advance. Provide the following:

·         Copy of the lease/rental agreement
·         Document market value of desk rental services through Craig’s list, square footage analysis or other verifiable source

Approval Required – Joint Marketing Arrangements


Similar to a Desk Rental, partnering with referral sources to advertise or market must also be evaluated for potential conflicts and approved by management. Particularly when this relates to commercial communication, the material must also be reviewed against the Provide:

·         Any advertising agreement
·         Copy of publication or proposed media

Approval Required - Marketing Vendors


Payments to marketing vendors, such as lead generation companies, may create problems if we base the payments on anything but the lead itself.  If there is a payment conditioned upon a certain criteria or threshold, such as confirmed application, underwriting approval or closing, the arrangement may be considered illegal.  For approval provide:

  • Marketing Agreement
  • Fee Schedule for Leads

In addition, the agreement and vendor must be approved to ensure the vendor complies with Fair Lending, Information Security, Customer Privacy and other consumer-facing regulation.

Approval Required - Payments to Counseling Agencies


Payment for services to a non-profit agencies for counseling services performed are permitted.  Provide:
  • memorandum of understanding between the lender and the non-profit agency 
  • establish how payments to vendor are not based on referrals .

Required Disclosures


·         Affiliated Business Arrangement Disclosure (AfBA) – if Applicable
·         Required Provider Disclosure – From LOS
·         Approved Settlement Services Provider List

Operating Areas Affected


·         Origination - Production
·         Compliance

Penalties for Non-Compliance


Penalties for violations of the anti-kickback provision include fines of up to $10,000 and up to one year in prison.