More than 40 people representing real estate firms, mortgage bankers, title companies and others were scheduled to converge on the Department of Housing and Urban Development Aug. 6 to air their views on the Real Estate Settlement Procedures Act's final rule.
The disputed provisions included the control of computerized loan origination, pre-empting of state laws and regulation and disclosure of controlled business arrangements. One highly disputed provisions was the controlled business arrangement provision that many in the mortgage banking industry believe legalizes "kickbacks."
Many organizations disagree with the mortgage banker position, however. The Savings & Community Bankers of America, for example, believes the provision is good for consumers and supported that view point at the hearing.
Mary M. Fowlie, a SCBA spokesperson, was scheduled to speak out in support of the provision, claiming a practical problem would arise from an interpretation of Respa that ... "would effectively ban all referrals," and added that SCBA felt that the provision involving referral fees didn't need to be removed--merely reclarified.
"A [current] definition of ~employee' is essential," she said in her testimony. "The regulation is ... at best, meaningless and, at worst, vulnerable to serious abuse. A person who is an independent contractor under the Internal Revenue Code and its accompanying regulations should not be considered an employee for the purposes of Respa. A person who works 40 hours or more a week for a single entity and receives marketrate pay ... is clearly an employee."
An employer--a real estate agent or mortgage broker in this case--is the best judge of whether a person is an employee, but, she suggested, HUD should be allowed to find otherwise if the employer's characterization is not a fair representation.
"HUD must consider, then clarify, the extent to which this exemption applies within affiliated or connected companies," she said. "The possibility for abuse exists ... because the borrower is not in a position to understand that the person making the referral has a financial interest in sending him to a particular service provider, and therefore, may treat this as if it were a suggestion of a knowledgeable, but neutral party. A mere disclosure of the existence of this fee is probably an insufficient answer.
"SCBA urges HUD to permit payments to employees only for referrals to people or departments within the same corporate entity, rather than parents, subsidiaries or partners."