Thrifts want HUD to remove the fuzziness from certain provisions in the departments long-awaited proposed Respa rule, particularly provisions pertaining to controlled business arrangements and, along with mortgage bankers, plan to ask HUD for detailed clarifications.
HUDs proposed changes to the Real Estate Settlement Procedures Act drew some praise from thrifts and mortgage bankers, both of which believe the proposed rules to be an improvement over the previous regulations. But ambiguity over what might be allowed by the one compensation exemption in the rule has sparked concern.
Under the HUD proposal, no employee may be paid referral fees, even for referrals to an affiliated company. HUD said the previous rule was too expansive and compromised the statutes purpose of protecting the consumer from being referred for settlement services based on financial gain.
But while HUD closed the door on the employer-employee exemptionor believed it hadlenders contend an exception that would allow some bonuses and compensation to be paid to employees on a restricted basis, which thrifts believe could leave the exemption door open for abuses.
Specifically, the proposed rule would allow for payment of bonuses and compensation to managerial employees in controlled businesses for such purposes as the generation of business among affiliates if it:
*Is not tied to a one-on-one basis, or calculated as a multiple of the number or value of any referrals; and
*Is extended to employees who do not routinely deal with the public.
The greatest fuzziness [in the proposed rule] remains in controlled business arrangements, said Brian Smith, director of policy for the Savings & Community Bankers of America.
Smith said HUD is unclear on what constitutes customer contact that is managerial. What if you have a division that is linked to [a branch that deals with the public], but theres some sort of profit- sharing system? he said. Then there is some indirect access to consumers and there could be some in-direct benefit for retention of customers in real estate transactions.
Smith said SCBA would like to know how closely those relationships would be scrutinized to ensure theres no anti-consumer incentive to steer a customer one way or another. He also said SCBA planned to ask for those clarifications to be outlined in the rules final draft. The proposed rule is being reviewed by the House Banking Housing Subcommittee. It was to be published in the Federal Register on July 21.
Computerized loan originations were also a key element. HUD, in trying to avoid in-hibiting the growth of CLOs, determined that keeping the exemption for borrower-paid service fees was justified, this will allow originators to continue collecting fees under certain conditions.