Insights

Say hello to the Consumer Financial Protection Bureau as a new enforcer of the Real Estate Settlement Procedures Act, but don’t say goodbye to the Department of Housing and Urban Development.

HUD has updated its RESPA home page to reflect the fact that the CFPB is the new RESPA enforcer, thanks to provisions in the Dodd-Frank Act that took effect on July 21, 2011. But, perhaps not coincidentally, the July 29, 2011 Federal Register includes a summary of HUD Federal Housing Administration administrative sanctions imposed by HUD’s Mortgagee Review Board on 26 FHA-approved mortgagees between October 23, 2009 and February 7, 2011. (An additional 123 listed lenders lost their FHA approvals during that time period due to failure to meet HUD’s annual FHA recertification requirements, and an additional 91 listed lenders had their FHA approvals reinstated during that time period, following delayed compliance with annual recertification requirements.)

Some of the grounds for these recent administrative sanctions include alleged RESPA violations. For example, FHA approval was withdrawn from several mortgagees (either permanently or for an agreed-upon time period, such as three years) for reasons that include alleged failure to “disclose all charges to borrowers on the Good Faith Estimates,” to “disclose the amount of the Yield Spread Premium on the Good Faith Estimate,” or to provide Controlled Business Arrangement disclosures. Some of the administrative sanctions also appear to have been based in part on apparent RESPA Section 8(b) violations, including charging borrowers “excessive and duplicative fees” or “unallowable, unearned and/or unsupported fees.”

Non-RESPA-related reasons for recent HUD FHA administrative sanctions include alleged failure to comply with federal flood insurance requirements and Home Mortgage Disclosure Act loan/application reporting requirements.

FHA-approved lenders are subject to potential HUD administrative action for a variety of reasons, including payment of referral fees in connection with FHA transactions and any other violation of RESPA. (See 24 CFR Section 25.6(f) and (r).) In addition, administrative action is permitted with respect to “[b]usiness practices which do not conform to generally accepted practices of prudent mortgagees or which demonstrate irresponsibility.” (See 24 CFR Section 25.6(p).) So, for lenders that want to obtain and maintain FHA approval, HUD continues to have RESPA examination and enforcement authority, even though the authority to issue RESPA regulations has been transferred to the CFPB.

Lenders that are subject to state laws requiring compliance with applicable federal law as a condition of obtaining or maintaining certain state licenses may also be subject to state examination of their compliance with federal law, including RESPA. Many states may require licensed lenders to report formal and informal HUD administrative actions for FHA program violations through the Nationwide Mortgage Licensing System and Registry. RESPA (12 USC Section 2614) also specifically allows state attorneys general and insurance commissioners to bring civil actions to enforce specific provisions of RESPA. So, while we should say hello to the CFPB as a new RESPA regulator and enforcer, we shouldn’t say goodbye to HUD or state regulators as additional RESPA enforcers.

Elizabeth C. Yen is a partner in the Connecticut office of Hudson Cook, LLP. Elizabeth can be reached at 203-776-1911 or by email at eyen@hudco.com.