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The Punchline
by Robert Franco | 2008/02/20 |

I have long thought that RESPA has become a joke - now, HUD Secretary Alphonso Jackson has provided the punchline. Attorney Howard Lax recently wrote an article for RESPA News, HUD Violating RESPA?, that pointed out a clear Section 8 violation in a HUD sponsored program.

It is Oscar time. The award for Best Performance Sticking a Foot in Mouth goes to HUD Secretary Alphonso Jackson for his portrayal of a bona fide Cabinet Member.

According to a HUD press release:
First, individuals will be able to purchase a HUD Home with a $100 downpayment when they utilize an FHA-insured mortgage. Second, homebuyers can obtain a $2,500 sales allowance at closing when they use FHA financing, or a $1,000 sales allowance using other financing types. This incentive can be put towards closing costs, to make home repairs, or to pay down the mortgage. The $1,000 allowance for non-FHA financing must be used to pay closing costs. Finally, real estate brokers can obtain a $500 bonus when borrowers utilize FHA financing and a $250 bonus if borrowers use other financing options. The incentives are available through September 30, 2008.

As attorney Lax pointed out in the article, mortgage insurance is a settlement service, and HUD is not exempt from Section 8 of RESPA. For anyone who may not be familiar with RESPA, HUD explains Section 8 on their Web site quite clearly:

Section 8 of RESPA prohibits anyone from giving or accepting a fee, kickback or any thing of value in exchange for referrals of settlement service business involving a federally related mortgage loan. In addition, RESPA prohibits fee splitting and receiving unearned fees for services not actually performed.

Hmmm... HUD's offer seems to provide an extra $250 bonus [kickback] for real estate brokers who direct their borrowers [referral of settlement service] to FHA financing [federally related mortgage loan]. I heard that the going rate for a referral in Florida was $300... I guess HUD is in the ball park.

Source of Title Blog ::

Attorney Lax contacted HUD on February 7, 2008 to ask for its comment for the RESPA News article and HUD Spokesman Brian E. Sullivan responded on February 11, 2008:

“The intent of this program was to help stabilize neighborhoods and to prevent blight in the wake of rising foreclosures. But because this program may also leave some with the perception that this is contrary to the spirit of RESPA, we’ve stopped it.

“We have frequently offered incentives to encourage the sale of foreclosed properties. For example, we have offered incentives to encourage the sale of our properties to owner-occupants. In response to the subprime mortgage crisis, we extended this incentive as a way to match desperate homeowners with a safer, more secure loan program. Again, since this may leave some with the impression that this is inappropriate, we have stopped this particular campaign.”

Yes, they stopped it.... just one day after they received the call from Attorney Lax. The HUD press release now contains this: "As of February 8, 2008, the FHA bonus program has been discontinued." But, its not about "perceptions" that the program violated the "spirit of RESPA," or "impressions" that it was "inappropriate." Its about blatantly violating the letter of the law!

In the article, Attorney Lax explains that the HUD program was an excellent example of why RESPA outlawed referral fees. HUD should be lowering its FHA insurance premium by $250 to attract new business. Paying a referral fee to a real estate broker instead of cutting the borrower’s closing costs confirms that FHA insurance is overpriced, and that referral fees drive up the borrowers’ closing costs.

If it weren't for the fact that HUD is the brain-trust behind RESPA and the entity responsible for enforcing it, this would just be laughable. But, since HUD can't even seem to abide by its own rules, how can we trust them with the task of RESPA reform? I have always questioned the logic behind the exceptions to RESPA for affiliated business arrangements (AfBA) and now we know that there is none. HUD just doesn't get it!

If HUD thought that this program was acceptable under RESPA, our problems run much deeper than a need to reform RESPA, we need to take a close, hard look at the people running HUD. The hypocrisy of it all just makes me shake my head in despair. With guidance like this, it is no wonder the industry is rife with corruption and void of ethical behavior.

Thanks for providing the punchline, Mr. Jackson, but the joke isn't funny. Besides, it's an election year... I get enough comedy from CNN.

Robert A. Franco


Categories: Ethics, RESPA

1085 words | 4390 views | 2 comments | log in or register to post a comment

You are so correct Robert-now I can...
You are so correct Robert-now I can see why it is so readily accepted as "OK" to add addition fees to the title fee, without any additional value or core title work being performed. The Big title Insurance companies just seem to promote this as though it is like all of their other illegal activities, until they get caught, and then it is off to another local to corrupt and embezzle from. Great for that good ole bottom line.
Maybe the state insurance commissioners should take a look at this kind of activity by them and shut them down for a period of time- close down everything until they comply with the laws.
It never occured to me that in the course of doing a title, I might be involved with this kind of distant criminal activity, while not directly , but it still involves a case that my name just happens to appear on somewhere. Looks like it is time for another disclaimer in the footer.
by Steve Meinecke | 2008/02/21 | log in or register to post a reply

Pretty Ironic, thanks for pointing ...
Pretty Ironic, thanks for pointing that out. 
by Greg Knowles | 2008/02/21 | log in or register to post a reply
Source of Title Blog

Robert A. FrancoThe focus of this blog will be on sharing my thoughts and concerns related to the small title agents and abstractors. The industry has changed dramatically over the past ten years and I believe that we are just seeing the beginning. As the evolution continues, what will become of the many small independent title professionals who have long been the cornerstone of the industry?

Robert A. Franco



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