Industry News

The following is an excerpt from a HUD news release dated 11/27/01. For more complete information please visit www.hud.gov.

HUD news release (11/27/01)

HUD MOVES TO PROTECT FAMILIES FROM ILLEGAL MORTGAGE FEES - LENDERS TO PAY $2 MILLION

WASHINGTON - HUD Secretary Mel Martinez announced today that as part of the Department's initiative on enforcement of the Real Estate Settlement Procedures Act (RESPA), HUD has recently entered into several settlement agreements resulting in more than $2 million in payments for violations involving illegal kickbacks and referrals. "These cases demonstrate HUD's determination to enforce RESPA and to stop illegal referral fees and unearned fees that may ultimately raise the price that unsuspecting families pay for their homes," Martinez said.

The settlements total over $2,250,000 for consumer housing counseling and education, refunds to homebuyers, and payments to the government. The settlements include agreements with The First American Corp. and Transamerica Corp., providers of flood determination and tax settlement services to hundreds of lenders throughout the country. The companies cooperated in HUD's investigations and entered into the settlements to resolve the findings of HUD's investigations.

RESPA requires disclosures to homebuyers of settlement costs and provides protections to homebuyers during the process of settlement of a mortgage loan. Section 8(a) prohibits kickbacks and referral fees among settlement service providers and section 8(b) prohibits the charging of unearned fees for settlement services. Section 9 prohibits requiring the use of a particular title company.

"Settlement service providers have a right to be reasonably compensated for their services. They don't have a right to collect illegal kickbacks and unearned fees," said Martinez. "American families shouldn't be overcharged for mortgage services and HUD will continue enforcement action against these abuses." The recent RESPA settlements include the following cases.

The First American Corp. (and subsidiaries and affiliates). HUD investigated First American of Santa Ana, California, certain of its subsidiaries in various parts of the country, and mortgage lenders, for violations of Section 8(a) of RESPA; specifically, where First American provided flood determination services and tax services through contracts with lenders for reduced or no fees on existing loan portfolios in exchange for exclusive servicing of new loans. HUD determined that these transactions amounted to referrals of future business and, therefore, violated Section 8(a). The settlement requires First American to cease such violative contract operations and requires notification to lenders. Additionally, First American will contribute $1,000,000 to approved non-profits for housing counseling assistance and education, and $200,000 will be paid to the U.S. Treasury for costs of investigation and monitoring of the agreement.

Transamerica Corp. HUD has entered into a settlement agreement with Transamerica Corp. located in San Francisco and certain of its affiliates located in New Jersey. Based on referrals from bank regulatory agencies HUD investigated allegations of illegal referrals involving flood and tax realty servicing. HUD determined that beginning in 1994-95 Transamerica violated section 8 of RESPA by providing free or reduced-cost portfolio reviews to lenders in exchange for those lenders referring future flood certification and portfolio monitoring review business to Transamerica. Transamerica provided HUD with information as part of HUD's investigation and did not admit to any violation of RESPA in entering into the settlement agreement. Under the terms of the settlement Transamerica will pay $500,000 to HUD approved housing counseling entities for consumer counseling and education. In addition, Transamerica will pay $113,000 to the U.S. Treasury for costs associated with the investigation and oversight of the agreement. Transamerica also agreed to comply with RESPA and, in future agreements with lenders, to have no link between servicing of loans below the cost of providing the service and the future referral of business. Transamerica also agreed to notify certain lenders and reform provisions of contracts with lenders.