All I want for Christmas is a kickback… or not

Happy post-Christmas Friday to the ten of us who are back to work and reviewing RESPA kickback rules together.

The compliance team often receives questions from credit unions about how to cooperate with real estate brokers and home builders without violating the Real Estate Settlement Procedures Act (RESPA) rule against kickbacks. Remember, RESPA does not prohibit all business relationships or agreements between settlement service providers, but RESPA prohibits any person from giving or receiving any “thing of value” in exchange for a referral of settlement services. See, 12 CFR § 1024.14(b). As credit unions, real estate brokers and other businesses may be providing settlement services, whether a particular event is a “kickback” in violation of this prohibition will depend on the benefits flowing between the businesses. The Federal Deposit Insurance Corporation (FDIC) has recently given us a reminder of what types of actions are prohibited in its recent order against HomeStreet Bank.

Wait, what happened?

In November, the FDIC determined that HomeStreet Bank entered into certain co-marketing arrangements in which the bank and real estate brokers agreed to market their services together using online platforms. In addition to joint marketing, it was found that HomeSteet bank entered into desk rental agreements under which the bank rented space in the offices of real estate brokers and home builders. The problem with these agreements was that HomeSteet bank did not pay fair market value for the rented space, but instead paid more than market value in exchange for business referrals. These arrangements resulted in the payment of fees by the bank to real estate brokers and home builders for their referrals of mortgage loan business, in violation of RESPA’s kickback rule. HomeStreet Bank has since discontinued its affected mortgage banking business line and agreed to pay a civil money penalty of $1.35 million.

 

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