S ECTION 8 of the Real Estate Settlement Procedures Act (RESPA) is simple in its intent, but complicated in its application. The prohibition on unearned fees and kickbacks is aimed at ensuring that business referral arrangements between settlement service providers do not result in inflated costs for mortgage consumers. However, the intricacies of understanding what creates Section 8 risk have been
increasingly complicated by our shifting regulatory environment.
When broken down into its key paragraphs, Section 8 appears approachable and
somewhat straightforward; 8(a) prohibits payments for referrals made between
settlement service providers, 8(b) prohibits fee splitting, which is paying any portion of a fee to a settlement service provider other than for work performed,
and 8(c) states in detail that “nothing” in either (a) or (b) prohibits the
payment of a fee that is paid at reasonable market value for services
actually performed, or goods or facilities actually provided.
The risk posed by this section of RESPA has presented
a moving target for compliance professionals. Marketing tools and strategies in the mortgage industry are
evolving with technology, complicating the way we
navigate kickback risk in a digital age. Further, recent court decisions have affected previous interpretations issued through enforcement actions by
theConsumer Financial Protection Bureau (CFPB).
As a result, it is necessary to analyze and illuminate the enforcement environment in which we are
functioning, and explore actions that can be taken
to kick back against risk presented by Section 8.
PHH Corp, the Bureau and the Safe Harbor
In June of 2015, then-Director Richard Cordray issued a decision
in the Bureau’s administrative action against PHH Corporation
(PHH) under RESPA Section 8. The company’s mortgage subsidiary had maintained a captive reinsurance arrangement through
which it referred its mortgage customers to private mortgage
insurers, and those insurers in turn purchased reinsurance from a wholly owned subsidiary of PHH. The
Director asserted that this arrangement violated
RESPA on the basis that 1) PHH limited its
referrals to companies that agreed to
purchase reinsurance, thereby tying