By Whitney Nicholas, Credit Union National Association
Where I live, the fall real estate market seems to be booming. When I take a walk around my neighborhood, I am seeing more “for sale” signs than usual for this time of year. Perhaps this is because COVID-19 forced the spring market to a grinding halt. Or maybe with more work from home opportunities, more people are leaving the cities. Whatever the reason, more homes for sale likely means more people applying for mortgages, so I wanted to use this opportunity to review one of the most important provisions of the Real Estate Settlement Procedures Act (RESPA), Section 8(a) which prohibits kickbacks.
Section 8(a) Review:
Section 8 of RESPA prohibits anyone from giving or accepting a fee, kickback, or anything of value in exchange for referrals of settlement services in connection with any loan covered by RESPA. The Act also prohibits fee splitting and receiving unearned fees for services not actually performed. These restrictions apply in any situation where settlement services are related to a federally related loan. The rendering of services by a mortgage broker is a “settlement service” for purposes of the rule.
Let’s suppose a real estate agent hosts an open house for brokers, and a mortgage lender offers to pay for lunch at the open house. This would violate RESPA because the mortgage lender has just provided a thing of value (lunch) in consideration for the referral of business in violation of RESPA’s anti-kickback provision.
Now, what if instead, the lender gave the real estate agent marketing materials, such as desk calendars, pens, and notepads, all of which promote the mortgage lender company’s name. While this seems like it would be a “thing of value” on par with lunch, there is actually an exception in RESPA for normal promotional and educational activities that are not conditioned on the referral of business and that do not defray expenses that otherwise would be incurred by persons in a position to refer settlement service business.
Now consider another example: what if the real estate agent and the mortgage lender agree to place a joint advertisement in the paper together and both split the cost of the advertisement 50/50? Provided the ads were of equal size and the fees were split evenly, this would not be a RESPA violation. Nothing is RESPA prevents joint advertising, provided each party is paying their pro-rata share.
When I advise credit unions on this provision in RESPA, I think it’s a good idea to keep in mind that generally, if you have to ask yourself if what you are doing would be a RESPA violation, the answer is probably yes. If it smells fishy, it probably is. Just something to be aware of in this busy season.