July 12, 2011
FHA borrowers come to the bargaining table with a set of consumer protections on their side in the form of the Real Estate Settlement Procedures Act, or RESPA for short. One of those protections is a policy that lenders may not get any financial compensation for referring business to third parties such as home warranties, insurance, etc.
This rule prevents a conflict of interest in the real estate industry; RESPA laws are designed to keep buyers from being steered towards goods and services based on hidden relationships between lenders and third parties.
HUD recently issued a press release announcing a settlement involving Fidelity National Financial, which was found to have engaged in illegal kickbacks and referral payments. The press release says Fidelity National Financial, “engaged in a widespread and years-long campaign to pay real estate brokers kickbacks for the referral of real estate settlement services, including home warranties and title insurance.”
According to HUD, Fidelity National Financial used subsidiaries to pay referral fees for settlement services. This is a violation of RESPA Section 8. “To facilitate these payments,” the HUD press release says, “real estate brokerages entered into ‘Application Service Provider Agreements’ which provided the real estate brokerages access to TransactionPoint, a web-based platform that automates the real estate transaction from listing to closing. This online system also allows the brokers to select real estate settlement providers for a particular real estate transaction.”
The HUD allegations state these brokerages were paid a fee for each referral–something not allowed under the Real Estate Settlement Procedures Act.
As part of the settlement, the financial institution agrees to “cease this practice and pay HUD $4.5 million to resolve the complaint”. Acting FHA Commissioner Robert Ryan was quoted in the release saying kickbacks and other secret deals between third parties and FHA lenders will not be tolerated. “RESPA is very clear that paying fees or providing anything of value for the simple act of referring business is a violation of law…”
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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