Panel Highlights Recommendations for Changes to RESPA Section 8

(From left: Michael Sullivan, Brian Levy, Suzanne Garwood, Holly Spencer Bunting, Alisha Sears and Bradley’s Aaron Chastain; Image by Anneliese Mahoney)

DENVER–Fifty years after the passage of the Real Estate Settlement Procedures Act, reforms and clarifications are needed, a panel said at the Mortgage Bankers Association’s Annual Convention & Expo Oct. 28.

MBA last month released a white paper to outline a series of recommendations. It also provides some context and history on the law, which generally dictates the business relationship between settlement service providers–including lenders–for federally regulated mortgage loans.

Members convened on the issue over the course of months, explained Alisha Sears, Director, Regulatory Counsel at the MBA, to “discuss the issues that they’re seeing in their practice, and to develop recommendations to better serve [not only] our industry, but to really analyze whether or not this is truly a benefit to consumers.”

The recommendations are specifically focused on RESPA Section 8 and regulations on marketing service agreements and desk rentals, digital marketing and lead generation, and affiliated business arrangements. MBA also made several general recommendations to bring RESPA in line with current jurisprudence.

Generally, the recommendations, which can all be found in the white paper, argue for a need for clarification and consistency in both the interpretation and application of RESPA, among other suggestions.

One important piece of context is RESPA’s age, said Brian Levy, Of Counsel, with Katten & Temple. “You’ve got to think back to 1974 when this law was enacted, and what the market was like at this time,” he said. “Everything was paper. Everything was in person.”

At that time, home buyers were more reliant on real estate agents to guide the home buying and settlement experience. But with the dawn of the internet, people have more information available to them and there’s less of a chance that a buyer would think a referred service is their only option.

“We’ve got such a different marketplace now that we have to be able to adapt this law to the current situation,” Levy said.

Not only is the application of a 50-year-old law in the age of the internet problematic, but the law and the guidance released about it thus far require significant clarifications, the panel noted.  

As an example, one sticky point is the line between marketing and referrals. Holly Spencer Bunting, a Partner at Mayer Brown, pointed to language in a Consumer Financial Protection Bureau FAQ that notes that “advertisements for a settlement service provider in widely circulated media” are a marketing service, and therefore allowed.

But, Bunting asked, what does “widely circulated media,” mean? “A banner advertisement on a mortgage broker’s website, or a mortgage lender’s website–it’s disseminated to the general public. Anyone can visit, anyone can see that advertisement. And that should be the general public.”

However, it’s that exact sort of fuzziness that provides stress and confusion.

Another example of vagueness relates to “neutrality,” described Suzanne Garwood, Managing Director and Associate General Counsel at JPMorgan Chase’s home lending legal division.

The CFPB recently released an advisory opinion that prohibited the non-neutral display of lenders on websites, deeming it a RESPA violation (as well as a violation of Dodd-Frank’s Unfair, Deceptive, or Abusive Acts or Practices.) But, that’s hard to parse, because RESPA doesn’t actually require neutrality in marketing, just that referrals be free from kickbacks or hidden referral fees.

Bunting noted that after that advisory opinion, she talked to lenders that were concerned about listing their information on various sites. Ultimately, that means the confusion over RESPA could have some unintended consequences.

“The concern was that now the consumers have less choices,” Bunting highlighted. “Everyone online shops, even for a mortgage these days. So if lenders are concerned that displaying their information and paying to do so can be construed as a RESPA violation, consumers ultimately are being harmed here.”

And, the confusion around RESPA can stymie innovation and use of new technology, noted Michael Sullivan, Senior Vice President and General Counsel for Pulte Mortgage.

“We really want to use this as an advocacy tool,” said Sears about the paper. “This is a project that’s going to take several years, but we felt at 50 it was just the right time to really take a deeper look at an outdated law.”