According to the CFPB (Consumer Financial Protection Bureau), the Real Estate Settlement Procedures Act (RESPA) helps reduce closing costs for homebuyers and increases competition in the marketplace by prohibiting mortgage loan originators from offering referral incentives and kickbacks to other companies in exchange for referring homebuyers. Accordingly, the CFPB just recently issued its first RESPA Section 8 public enforcement actions since 2017.
The CFPB issued a consent order against a mortgage company for providing illegal incentives to real estate brokers and agents in exchange for mortgage loan referrals, and a consent order against a real estate brokerage firm for accepting those illegal kickbacks from the mortgage company in exchange for referrals. The CFPB ordered the mortgage company to cease their illegal activities and pay a $1.75 million penalty to CFPB. The CFPB likewise ordered the real estate brokerage firm to cease illegal activities and pay a $200,000 penalty to the CFPB.
It’s important to note that the activity that violated RESPA Section 8 falls into what might be considered obvious violations and were not the sophisticated, clandestine schemes we often think about when contemplating the complex world of RESPA Section 8. On the hotline we regularly analyze situations that aren’t specifically covered by regulation, and help members navigate the gray areas, but the regulation is fairly clear on certain scenarios – and it’s these scenarios that were mainly the subjects of the enforcement actions. For example, the violations involved exchanging obvious things of value for referrals, such as the mortgage company providing real estate agents and brokers with cash, paid subscription services, and catered parties in exchange for referring prospective homebuyers to the mortgage company.
Further, the mortgage company entered into marketing services agreements with numerous real estate brokerages where the mortgage company made monthly payments in exchange for the brokerages’ marketing services. However, the mortgage company used these marketing services agreements as a way to pay for mortgage referrals, rather than compensate the brokerages for marketing services they actually performed. In fact, the CFPB found that the real estate brokerages often failed to perform many of the marketing tasks required under the agreement.
Really, if there’s a lesson to be learned from these enforcement actions, it’s that blatantly violating the regulation is still the problem it’s always been. While RESPA Section 8 may not receive the attention it did in the past, these recent enforcement orders make it clear that this is still an area of concern for the CFPB and that obvious violators will be pursued.
Considering the CFPB’s recent actions along with the October 2020 Frequently Asked Questions guidance and the Advisory Opinion on Mortgage Shopping Platforms, issued back in February 2023, RESPA Section 8 is still on the CFPB’s radar. Always feel free to reach out to us on the hotline, should you have any questions about activity and how it complies with the regulatory requirements of RESPA Section 8. Additionally we have cheat sheets, summaries, workflows, and webinars, and more to help with RESPA Section 8 concerns.