You’ve been warned: CFPB puts real estate agents, lenders on RESPA violation watch

Enforcement now top priority

RESPA — the Real Estate Settlement Procedures Act — is a current buzzword in the housing industry with an increased scrutiny from the industry’s top consumer watchdog.

Between the Consumer Financial Protection Bureau slapping Prospect Mortgage with a $3.5 million fine for violating RESPA earlier this year and beefing up its ongoing investigation into Zillow for possibly violating RESPA, the real estate agent/lender space is being sent a warning, one industry attorney advises.

“Lenders should see this as clear warning that any arrangement with a real estate agent that is used to disguise payments for referrals will be critically reviewed by the CFPB for RESPA violations,” said Daniella Casseres, principal at Offit Kurman.

Casseres explained that the news of this investigation, combined with the RESPA consent order against Prospect Mortgage earlier this year, is a clear sign that RESPA enforcement remains a top priority for the CFPB.

“We have also seen state regulators increase their scrutiny of lead share and co-marketing relationships,” she said.

Under RESPA, lenders, mortgage brokers, or servicers of home loans are required to provide borrowers with pertinent and timely disclosures regarding the nature and costs of the real estate settlement process. The act also prohibits specific practices, such as kickbacks, and places limitations upon the use of escrow accounts.

Back when the CFPB fined Prospect, CFPB Director Richard Cordray said, “Today’s action sends a clear message that it is illegal to make or accept payments for mortgage referrals.”

In Zillow’s situation, Casseres stated that the online company, like any vehicle used for co-marketing or lead sharing, has the potential to be used in such a way that it could violate RESPA’s anti-kickback provisions. 

Zillow, for its part, says it is doing no harm and the investigation is nothing new: “The practice of agents and lenders advertising together is a common business practice that pre-dates Zillow. It’s also regulated closely and has long been a focus of the CFPB,” the company said in an email to HousingWire.

However, the key for lenders now is to implement internal controls to ensure that their employees are prohibited from manipulating these lead share arrangements, which can subject to the lenders to civil penalties and enforcement actions,”added Casseres.

“A lender can avoid RESPA violations regardless of what Zillow’s system permits, if it establishes its own controls over the use of the system,” she added.

If a loan originator contributed to a real estate agent’s Zillow account contingent on an agent’s mortgage loan referrals to the loan originator, Casseres stated that it would be a RESPA violation.

And Zillow is not the only vendor that offers lead share arrangements for real estate agents and mortgage lenders, Casseres noted, “There are several other lead generation companies that operate under very similar models, and which could also come under RESPA scrutiny.”

So, if you work at one of those places; You’ve been warned.



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