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The Mortgage Bankers Association (MBA) on Thursday released a new white paper, which argues that Section 8 of the Real Estate Settlement Procedures Act (RESPA) is in need of reform and modernization to better reflect “today’s highly-regulated mortgage market.”
Dec. 22, 2024, will mark the 50th anniversary of RESPA being signed into law by President Gerald Ford. It was originally overseen by the U.S. Department of Housing and Urban Development (HUD), but in 2011, the oversight, enforcement and rulemaking responsibility was transferred to the Consumer Financial Protection Bureau (CFPB).
There are four main provisions of RESPA Section 8. It “prohibits kickbacks for business referrals related to or part of settlement services involving federally related mortgage loans,” according to the CFPB. It also prohibits splitting charges “made or received from” settlement services, except for “services actually performed” for federally related mortgages.
Section 8(c) identifies specific payments not prohibited by the other sections, while Section 8(d) details the penalties for broader violations.
But MBA characterizes Section 8 as “outdated and unnecessary,” saying that reforming it “would not create an unregulated or lawless mortgage lending landscape.”
Instead, shifts that have changed the ways that consumers shop and obtain information, along with reforms introduced by the Dodd-Frank Act, have worked to make Section outdated. This also, “in many instances,” makes it unnecessary, the association said.
In announcing the release of the white paper, MBA president and CEO Bob Broeksmit said that a conversation must take place regarding the “purpose and effectiveness” of RESPA Section 8.
“At 50 years old, there appears to be little evidence that the law’s intention of lowering settlement costs has ever occurred, and new marketing technologies and reforms since the passage of the Dodd-Frank Act have rendered it obsolete and costly with few consumer benefits,” he said.
Broeksmit added that modernization efforts and providing “more clarity on structuring marketing services agreements and affiliated business arrangements,“ as well as “making it easier for lenders to market digitally to consumers would spur greater competition, increase consumer choices, and lower settlement costs without compromising core protections.”
To facilitate these discussions, MBA “stands ready” to work with the CFPB, Congress and industry representatives to find the best path forward.
The final section of the white paper focuses on proposed solutions to the modalities MBA takes issue with in Section 8. These include changes to the method “by which the CFPB determines whether a Marketing Services Agreement (MSA) or a desk rental agreement is an illegal hidden referral fee.” It also discusses a revision to CFPB’s policy on rental office spaces, tying referral fees to market values to discern whether there was any excess.
MBA also contends that the “CFPB should recognize advances in how modern businesses communicate and make it easier for lenders to digitally market their products to consumers.”
It supports the repeal of a 2023 CFPB advisory opinion that prohibits “non-neutral display of lenders.” And it urges amendments to Regulation X “to allow lenders to advertise and market their products or services directly to settlement service providers, so long as the marketing does not provide a thing of value in return for referrals.”
Guidance should also be amended on affiliated business arrangements to reflect the commonality of working from home, the MBA argues. The trade group wants to eliminate some listed factors that identify an entity as a “sham business” stemming from that same reality, while also allowing more electronic leniencies on business disclosures to reflect technological advancements.
