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Allied Settles With HUD Over Credit Report Upcharging

RESPA interpretation disputed

October 6, 2003


HUD's tripled RESPA enforcement proves to be on the prowl, as another mortgage lender disputed its interpretation of RESPA, but settled for allegedly inflating credit report costs.

The U.S. Department of Housing and Urban Development (HUD) announced Allied Home Mortgage Capital Corp. agreed to a settlement involving allegations of "upcharging" credit report costs for loan borrowers -- a violation of RESPA. Allied, which says it is a mortgage banker and broker with 700 offices nationwide, is the second company in less than a week to settle with HUD over RESPA issues, following Znet Financial.

In general, HUD said the Real Estate Settlement Procedures Act, or RESPA, protects loan borrowers by prohibiting kickbacks, referral fees and other unearned fees that can inflate mortgage loan costs. Specifically, according to the settlement agreement document on HUDs website, Section 8(b) of the act prohibits fee-splitting and receiving unearned fees for services not performed.

HUD alleged Allied violated Section 8(b) and other applicable RESPA laws -- by charging certain borrowers more for credit reports than had been charged by the provider of those reports. HUDs determination was based on an initial survey and a reviewing of Allied loan closing documents from January of 2000 to May 2002, according to the settlement document.

On the contrary, "Allied does not agree with HUD's interpretation of the RESPA rules," said company spokeswoman Mary McCue. But, "Allied wants to have good relationships with its regulatory agency so the company decided to settle the matter...to avoid further costs and extents, and get on with the business of providing service to its customers."

The MortgageDaily.com advertiser, which says it provides mortgage financing through a nationwide network of branch offices, has reportedly originated over $250 million a month in loans.

"Allied dispute(s) our interpretation of RESPA's speaking to this," said HUD spokesman Brian Sullivan. "But, I don't think there's any dispute that they were charging more than what it was costing them."

HUD recently announced an increase in its RESPA staff, with the department's secretary saying, "HUD and its partners are becoming much more effective in tracking down lenders who prey upon first-time homebuyers, senior citizens and minorities."

The settlement document cited that the net branch lender believed Section 8(b) of RESPA was an anti-kickback provision and did not prohibit upcharging. Thus, the company did not believe there was a violation.

"[Allied] certainly didn't admit that they were wrong doing, but agreed that in future occurrences when they discover there's an upcharging, especially amongst their affiliate loan originators, that they would take certain action," Sullivan said. Hence, Allied agreed to pay $370,000 to the U.S. Treasury, committed to annually audit its closing practices, and repay borrowers excess charges if any are found, according to the HUD announcement.

Coco Salazar is an assistant editor and staff writer for MortgageDaily.com.

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