U.S. Said to Plan Crackdown on Referral Fees

Federal attorneys may be laying the groundwork for a crackdown on mortgage lenders' referral compensation practices.

The U.S. Attorney's office in Philadelphia has prepared a blank indictment for criminal proceedings against any lender that violates current Real Estate Settlement Procedures Act rules on certain loan fees, sources said.

Apparently, the wayward lender's name is all that needs to be filled out on the legal document.

At issue is the section 8 provision of Respa, which prohibits compensation for referrals that increase costs to consumer.

Section 8 has prompted close scrutiny of back-end points, mortgage fees paid to a broker by the lender after closing. Federal attorneys are concerned that some lenders are improperly hiding referral fees in the rates charged to consumers over the life of the loan.

The document was circulated at a U.S. Attorneys' meeting in California, according to Joe Lefkoff, legal counsel for the National Second Mortgage Association.

Seven other federal attorneys around the United States are considering drafting similar documents, he said. Efforts to obtain the document or a comment from the U.S. Attorney's office in Philadelphia were unsuccessful.

In the industry, many say the practice of charging borrowers for referral compensations is widespread. "Everyone says, 'Everyone's doing it,'" Mr. Lefkoff told lenders at the National Home Equity Mortgage Association conference in Orlando last week.

But unless you can afford to pay the fines involved or want to spend time in prison, running with the pack is just not worth it, Mr. Lefkoff said. "You need to understand that these are the rules," he said.

Also last week, the Office of Housing and Urban Development's negotiated rulemaking board met for the first time. The body, which includes lender trade associations, government officials, and consumer advocacy groups, has five months to revise the mortgage broker compensation section of Respa.

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