September 2002 - RESPA

HUD Clarifies purpose of
RESPA Statement of Policy on Unearned Fees
good news for real estate brokers whose pricing structures
include administrative or transaction fees.

In mid July, HUD Secretary Mel Martinez clarified the Department's purpose in issuing the Oct. 18, 2001, RESPA Policy Statement on Unearned Fees. HUD's October 2001 Policy Statement was drafted primarily to respond to a court ruling regarding the mark-up of a third party charge by a loan originator and that HUD's concern was directed at payments made by consumers for services in connection with a mortgage loan. At that time, HUD did not consider payments by the sellers or purchasers of property for residential real estate under a contract with a real estate agent or broker and thus, created widespread confusion and concern throughout the brokerage industry.

The secretary's recent letter suggests that real estate brokers and agents should feel confident that the vast majority of disclosed transaction fees are legal under the Real Estate Settlement Procedures Act (RESPA). HUD's focus is on the markup of third party services that are incurred as part of the mortgage loan process such as recording fees and fees for credit reports.

Since HUD pledged to crack down on RESPA violations, they have collected about $2.5 million in fines from 50 companies.

The most frequent RESPA violation occurs when a real estate agent or other participant in the transaction receives a kickback or fee for referring business to lenders or settlement service providers. Other common examples include lenders providing customers with a good-faith estimate that turns out to be significantly lower than the final closing costs; and when lenders fail to make insurance payments and property tax payments on behalf of the homeowner in a timely fashion resulting in late penalties to the borrower.

Sellers are also prohibited from forcing buyers to use a particular title insurance company. The most common complaint, however, concerns referral fees or kickbacks, as well as fees imposed for services that are not provided. Lenders or brokers who charge such fees could be fined as much as $10,000, sentenced to a year in prison, or found liable for damages.