In its first No-Action Letter under the new revised policy, the CFPB addresses a long-standing issue under the Real Estate Settlement Procedures Act regarding certain payment arrangements between mortgage lenders and housing counseling agencies. We previously reported on the CFPB issuing its final No-Action Letter policy and other innovation policies. (The CFPB issued just one No-Action Letter under its policy prior to its revision.)
RESPA section 8 prohibits the giving or receiving of any thing of value pursuant to any agreement or understanding that business incident to or a part of a real estate settlement service shall be referred to any person. An exemption from the prohibition permits the payment to any person of a bona fide salary or compensation or other payment for goods or facilities actually furnished or for services actually performed.
The U.S. Department of Housing and Urban Development (HUD) has a Housing Counseling Program (Program) that it administers pursuant to its authority to work with public or private organizations to provide information, advice, and technical assistance, including counseling and advice to tenants and homeowners with respect to property maintenance, financial management, and such other matters as may be appropriate to assist them in improving their housing conditions and in meeting the responsibilities of tenancy or homeownership. Housing counseling agencies can apply for approval to participate in the Program and must meet the Program requirements set forth in HUD regulations and other HUD materials. The Program requirements include consumer protections. Additionally, under the requirements, if a counseling agency enters into a Housing Counseling Funding Agreement pursuant to which a lender will provide funding for counseling services, the terms of the agreement must be set forth in a Memorandum of Understanding (MOU) between the parties. HUD regulations permit lenders to pay agencies for counseling services, through a lump sum or on a case-by-case basis, provided the level of payment does not exceed a level that is commensurate with the services provided and is reasonable and customary for the area. Any payment arrangement between the lender and agency must be disclosed to the agency’s client (i.e., the consumer).
In its application for a No-Action Letter on behalf of more than 1,600 counseling agencies participating in the Program, HUD notes that both lenders and counseling agencies perceive that entering into a Housing Counseling Funding Agreement presents a compliance risk under RESPA. This results in lenders being reluctant to enter into the agreements, and agencies must seek alternative sources of funding to provide counseling. HUD explains that the PHH Corp. v. CFPB decision created uncertainty regarding the interaction of the RESPA referral fee prohibition and the exemption permitting compensation for goods, facilities or services that are provided. The particular issue identified by HUD is whether a mortgage lender may condition its payment to a housing counseling agency on the consumer making contact with the lender or closing a loan with the lender.
HUD provides this interesting background on efforts of stakeholders to obtain guidance from the CFPB:
“HUD understands that while the PHH case was on appeal to the full D.C. Circuit, the Bureau in early 2017 gave informal, oral guidance to a group of interested outside stakeholders (i.e., housing counseling intermediaries, mortgage lenders, and their outside counsel) on how RESPA section 8 applied to Housing Counseling Funding Agreements. HUD received feedback that the stakeholders did not believe the guidance alleviated the regulatory uncertainty because it did not directly address the key interpretive issues regarding application of RESPA section 8(c)(2), which the Bureau said it could not address while the PHH case was pending.”
HUD sought more definitive guidance from the CFPB by requesting a No-Action Letter. The CFPB No-Action Letter defines as “Recipients” of the letter, housing counseling agencies that participate in the Program to the extent they are in compliance with all the Program requirements. The No-Action Letter provides that unless or until terminated by the CFPB as described in the letter:
“[T]he Bureau will not make supervisory findings or bring a supervisory or enforcement action against any Recipient under
(a) its authority to prevent unfair, deceptive, or abusive acts or practices, or
(b) section 8 of the Real Estate Settlement Procedures Act (RESPA) and section 1024.14 of Regulation X.”
for including and adhering to a provision in the MOU between the Recipient and the mortgage lender reflecting the terms of the Housing Counseling Funding Agreement that conditions the lender’s payment for housing counseling services on the consumer making contact or closing a loan with the mortgage lender even if that provision or the parties’ adherence thereto could be construed as a referral (as such term is used in RESPA section 8(a) and defined in Regulation X § 1024.14(f)); provided that, the level of payment for the housing counseling services does not exceed a level that is commensurate with the services provided, and is reasonable and customary for the area.” (Footnotes omitted.)
The No-Action Letter identifies only Recipients as parties that may reasonably rely on the CFPB commitment in the letter. Thus, lenders are not included among the parties who may so rely. However, the CFPB provides a No-Action Letter template that may be used by lenders to seek a No-Action Letter. Among the certifications that a lender would have to make in applying for a No-Action Letter is that the client of the housing counseling agency could choose between comparable products of at least three different lenders.