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HUD: expect RESPA scrutiny to continue.

Settlement-service providers should expect keener scrutiny and stricter enforcement of the Real Estate Settlement Procedures Act (RESPA) following a record year in 2005 for settlements, and as the various levels of government become more practiced at working together, noted an official with the Department of Housing and Urban Development (HUD).

Gary Cunningham, HUD's deputy assistant secretary for regulatory affairs and manufactured housing, told attendees at the Mortgage Bankers Association's annual Regulatory Compliance Conference in September in Washington, D.C., that the government's pursuit of RESPA offenders--intentional or otherwise--has only just begun.

"RESPA enforcement does continue to be a high priority at HUD, because we view it as an important part of HUD's mission to create affordable housing opportunities," said Cunningham.

Cunningham noted that in 2005 HUD completed 14 major investigations of settlement payments by various settlement-service providers--netting some $7 million in settlement payments from mortgage lenders, brokers, title companies and attorneys found to be in violation of RESPA, as well as an additional $300,000 in redress for individual consumers.

But don't be surprised if that record amount is surpassed this year as the federal agencies, along with law-enforcement officials at the state level, have firmly streamlined the lines of communication and are cooperating with each other, said Cunningham.

"Increasingly, you will see that the federal agencies, as well as state agencies that have some responsibility for regulating part of this real estate settlement process, are talking to each other," said Cunningham. "That is going to mean, and it has meant, an increased regulatory focus."

In enforcing RESPA, HUD and other government agencies will continue to take a "serious look" at affiliated business arrangements, warned Cunningham. "We're trying to make certain that the business practices that develop don't blur the lines between legitimate business practices and those that are based on kickbacks and referral fees," he said.

The day before Cunningham addressed conference attendees, HUD and the Federal Deposit Insurance Corporation (FDIC) announced twin settlements with a Boston-area real estate attorney and with a real estate appraisal company related to kickbacks paid to a large New England mortgage lender.

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The two settlements total nearly $20,000 and follow up on an agreement HUD and FDIC announced last November involving allegations that Peabody, Massachusetts-based 1-800-East-West Mortgage Co. requested and/or received kickbacks for the referral of settlement-service business.

As we reported in January, 1-800 East-West--a wholly owned subsidiary of Commerce Bank and Trust Co., Worcester, Massachusetts--agreed to pay $150,000 to settle the government's complaint that the firm solicited and received tickets from certain settlement-service providers to Boston Red Sox and New England Patriots events, as well as tickets to music venues and restaurant gift certificates, in exchange for the referral of business. (See Mortgage Banking, January 2006, p. 10.)

Section 8 of RESPA prohibits a person from giving or accepting anything of value in exchange for the referral of settlement-service business. It also prohibits a person from giving or accepting any part of a charge for services that are not performed.

HUD most recently determined that R. Norman Peters--a member of the board of directors for both East-West and Commerce Bank, as well as an attorney for a Worcester law firm--paid for tickets to a Boston Red Sox game, a New England Patriots event and upscale restaurant gift certificates.

HUD found these tickets and gift certificates were then provided to East-West and its employees to promote referrals of loan closings from East-West to Peters' law firm. Peters agreed to pay a civil money penalty to the FDIC and to make a settlement payment to the U.S. Treasury totaling $15,000.

In the second settlement, HUD determined that Grasso Appraisal Services, Burlington, Massachusetts, paid kickbacks to East-West and its employees in the form of restaurant gift certificates given in exchange for the referral of appraisal business. Grasso agreed to make a settlement payment to the U.S. Treasury in the amount of $4,000.

Both Peters and Grasso agreed not to give gifts or things of value to settlement-service providers in exchange for business referrals, to comply with RESPA, and to cooperate with the agencies' ongoing investigation of other settlement-service providers that provided kickbacks to East-West, said HUD.
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Title Annotation:Department of Housing and Urban Development; Real Estate Settlement Procedures Act
Publication:Mortgage Banking
Geographic Code:1USA
Date:Oct 1, 2006
Words:700
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