District Circular Letters
June 25, 1999
BANKING SUPERVISION AND REGULATION:
HUD POLICY STATEMENT
To State Member Banks
and Others Concerned
in the Twelfth Federal Reserve District
HUD Statement of Policy Regarding Lender Payments to Mortgage Brokers
The Department of Housing and Urban Development (HUD) has issued Statement
of Policy 1999-1, detailing the agency's position on the legality
of lender payments to mortgage brokers in connection with federally related
mortgage loans. The policy statement became effective March 1, 1999.
Statement of Policy 1999-1 addresses the legality of indirect fees and payments
made by lenders to mortgage brokers under Section 8 of the Real Estate Settlement
Procedures Act (RESPA). Section 8 of RESPA prohibits the payment of fees
or any "thing of value" for the referral of real estate settlement services,
but does not prohibit payment for goods or facilities provided by mortgage
brokers.
The question of what distinguishes payment to brokers for goods, facilities,
or services provided from payments that amount to illegal referral fees
has proven troublesome for those involved in the business of real estate
settlement. This policy statement clarifies HUD's position on this matter.
In general, HUD states that indirect fees or direct payments to mortgage
brokers are not illegal per se. The policy statement notes that mortgage
brokers may receive fees or compensation for services directly from a borrower,
indirectly from a wholesaler or lender providing the mortgage loan funds,
or a combination of both. Indirect fees may be referred to as "back funded
payments," "service release premiums," or "yield spread premiums." The HUD
policy statement stipulates that for a payment from a lender to a mortgage
broker to be permissible under Section 8, goods or facilities must actually
be furnished or services must actually be performed, and they must be of
the type normally performed in the origination of loans. The policy statement
further provides that the amount of such payments must be reasonably related
to the value of the goods or facilities furnished or services performed
in order to pass muster under Section 8 of RESPA.
Copies
Copies of HUD's Statement
of Policy 1999-1 are available from our Corporate Services
Department. To request copies to be sent via mail, please call (415)
974-2748.
For Additional Information
For additional information regarding HUD's Statement of Policy 1999-1, please
contact Mr. Gregory Imm, Consumer Compliance Liaison, at (415) 974-2953,
or Ms. Christiane Price, Consumer Compliance Liaison, at (415) 974-2955,
both of our Banking Supervision and Regulation Department.
FEDERAL RESERVE BANK OF SAN FRANCISCO
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