Legal
The Mortgage Counselors Mitchel H. Kider is the chairman and managing partner and Michael Kieval is a partner with Weiner Brodsky Kider PC, a national law firm specializing in the representation of financial institutions, residential homebuilders, and real estate settlement service providers.
The CFPB’s Revised RESPA/MSA Guidance
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ack in 2015, the CFPB made waves when it issued Compliance Bulletin 201505, which raised questions about whether the CFPB believed that marketing service agreements (MSAs) were permissible at all under Section 8 of RESPA. Five years later, on October 7, 2020, the CFPB rescinded that guidance, announcing a new set of FAQs on RESPA Section 8. We’d like to give you a few thoughts about what this all means for MSAs and for RESPA enforcement, generally, going forward. The new FAQs are fairly straightforward, mostly tracking the statutory text of Section 8 as well as the relevant provisions of Regulation X. While at first glance the FAQs do not provide a lot of guidance beyond what we already knew, they are good news for our industry for two reasons. First, the rescission of Compliance Bulletin 2015-05 is important because it is clear that the CFPB will apply the usual RESPA analysis to MSAs. Second, the FAQs should put to rest the CFPB’s earlier attempt to write Section 8(c)(2) out of RESPA. Under former Director Cordray, the CFPB took the erroneous position that reasonable payments for goods, facilities, or services were not covered by the Section 8(c)(2) safe harbor if the intent was to obtain referrals as part of the same transaction. Leaving aside the fact that their position, if taken to its logical conclusion, would
have banned mortgage brokering, that argument ran counter to decades of interpretations and guidance from HUD. The CFPB lost that fight in the U.S. Court of Appeals for the D.C. Circuit in the PHH case, with thenJudge Kavanaugh explaining clearly that a payment for goods, facilities, or services in an amount that bears a reasonable relationship to the general market value for such goods, facilities, or services, does not violate RESPA Section 8 even if there is an explicit agreement tying the provision of those services (for example) to a referral that also takes place. Judge Kavanaugh came to that obvious conclusion based on a careful reading of the statute. But it also makes sense from a practical perspective because compensable services are being provided and the payment is reasonable for the value of those services; any referral that may also be happening is not what is being paid for. The CFPB’s new FAQs accept the holding of PHH and abandon the CFPB’s previous attempts to rewrite Section 8(c)(2) out of RESPA. The CFPB also reiterates the test for whether a service, good, or facility are compensable, namely that they must be “actual, necessary, and distinct,” and that any services cannot themselves constitute a referral, which is the same test that has been in place since HUD’s Home Warranty
The MORTGAGE BANKER Magazine
50
November 2020
Interpretive Rule that was published in 2010. All of this does not mean that all MSAs are necessarily compliant, however. In fact, the CFPB stated clearly that it will continue to scrutinize MSAs for compliance with RESPA Section 8. And you also face risk from other regulators, as well as from private class action attorneys. In deciding whether to enter into an MSA with another settlement service provider, you should ask yourself the following questions: 1) Why do I value the services I am paying for? 2) Why am I paying this particular counterparty to provide the services instead of someone else? 3) Would the counterparty be performing these services even if I did not pay for them? 4) Are the services compensable under applicable regulatory guidance, or are they really describing referral activity? and 5) Do I have a reliable valuation of the services (generally from an unrelated third party) to show that I am paying reasonable market value? If, working with your counsel, you believe you have satisfactory answers to all of these questions, you still need to carefully document that you are receiving all of the services for which you are paying. If some of the services are not provided, withhold payment. Such an approach will go a long way towards helping your MSA withstand regulatory scrutiny and potential litigation. MBM
