RESPA Police Out in Force

HUD triples staff; more complaints investigated

September 25, 2003

By PATRICK CROWLEY

“The (Bush) administration is targeting unscrupulous lenders in part by pooling the resources of the federal government and helping agencies work together to fight abusive lending practices,” HUD Secretary Mel Martinez said in a March speech during the Mortgage Bankers Association of America’s National Housing Summit in Washington.

“As a result, HUD and its partners are becoming much more effective in tracking down lenders who prey upon first-time homebuyers, senior citizens and minorities,” he said.

In a printed statement, the Mortgage Bankers Association applauded Martinez “for his commitment to RESPA reform” which will “provide consumers with important and relevant information to navigate the complex mortgage orientation process.”

RESPA has been around since 1974. According to information posted on HUD’s web site, it is designed to help consumers become better shoppers for settlement services and eliminate kickbacks and referral fees that unnecessarily increase the costs of some settlement services.

The law mandates that borrowers receive various disclosures — including those spelling out settlement costs, lender servicing, and escrow account practices. It also forbids practices that could increase settlement costs and prohibits “a person from giving or accepting any thing of value for referrals of settlement service business related to a federally related mortgage loan,” according to HUD.

The prohibition on kickbacks covers sellers requiring buyers to buy title insurance from a particular company.

Experts in real estate law say they have already detected a more aggressive approach in targeting RESPA violations.

“Not only has (HUD) fortified (RESPA) in terms of staff, but it has begun to investigate a significantly increased number of complaints and potential RESPA violations,” the law firm of Kirkpatrick & Lockhart, which has 10 offices across the country and a large mortgage banking and consumer finance practice, said in a statement.

“HUD officials have indicated that, when HUD reviews a particular company’s practices, it will also review such practices by other entities rather than waiting to receive a complaint before investigating, as well as employ private investigators to conduct on-site investigations,” the law firm said.

Earlier this year, HUD settled a civil complaint brought against 13 lawyers in New York for violating RESPA by allegedly referring their clients to title companies they formed. As shareholders, the lawyers received referral fees from the title companies they had established.

As part of the settlement, the title company was required to file three years of amended tax returns.

“We hope (this) action will send a clear message to those who would provide settlement service to consumers,” FHA commissioner John Weicher said in a statement. “Basing your compensation exclusively on the volume of business referred violates RESPA.”

Kirkpatrick & Lockhart said the beefed up enforcement has been needed.

“Various industry professionals and consumer groups have criticized HUD for its failure to issue substantive RESPA rules and penalize those who violate RESPA requirements,” the firm said. “HUD’s perceived reluctance to enforce RESPA over the past several years may be due largely to the fact that, until recently, the department employed only a handful of individuals dedicated to RESPA enforcement matters despite its receipt of nearly 1,000 RESPA complaints per year.”

Patrick Crowley is a political reporter and columnist and former business writer for The Cincinnati Enquirer. Email Patrick at: [email protected]