A new white paper issued by the Mortgage Bankers Association (MBA) finds that reforms are needed to modernize Section 8 housing laws.
The paper, called “RESPA at 50: Key Reforms to RESPA Section 8 to Better Serve the Modern Mortgage Market,” focuses on how statutes, regulations, and market evolutions have made Section 8 antiquated since the Real Estate Settlement Procedures Act (RESPA) passed 50 years ago.
“It is time to have a conversation about 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,” MBA’s President and CEO Bob Broeksmit, said. “Modernizing and providing more clarity on structuring marketing services agreements and affiliated business arrangements and 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.”
The white paper is split into three parts. Part I describes how the current regulatory regime controlling referrals between settlement providers often leaves service providers without a sense of whether they are complying with those requirements. Part II looks at the background on how the passage of the Dodd-Frank Act and other reforms have made RESPA Section 8 outdated and ineffective. Part III is the heart of the white paper, and proposes several solutions to modernize RESPA.
“MBA and its members stand ready to work with the Consumer Financial Protection Bureau (CFPB), Congress, and industry stakeholders to reform this expensive and outdated compliance regime to the benefit of consumers and lenders alike,” Broeksmit said.
Among the key recommendations, the paper said changes should be made regarding the method by which the CFPB determines whether a Marketing Services Agreement (MSA) or a desk rental agreement is an illegal hidden referral fee. These changes will allow lenders and settlement service providers to market their products competitively, receive fair compensation for that marketing, and give consumers the benefit of receiving information about alternative settlement service providers.
Also, the CFPB should repeal a 2023 Advisory Opinion on Digital Mortgage Comparison-Shopping Platforms that prohibited the non-neutral display of lenders, deeming it an Unfair, Deceptive, or Abusive Act or Practice and RESPA violation. It should also amend 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. Further, the CFPB should clarify that mass marketing advertisements are not referrals.
In addition, the paper said the CFPB should update its guidance on affiliated business arrangements to reflect the modern work from home environment. Specifically, the CFPB should modify or eliminate several factors used to determine if an affiliate is a sham business, including whether the affiliate has dedicated office space, whether it does business with parties other than those that created the affiliate, and whether the workforce of the affiliate is made up of employees or independent contractors. Further, the CFPB and Congress should simplify affiliated business disclosures.
Finally, the paper calls for the CFPB to ensure mortgage lenders and settlement service providers have clarity as to their potential liability. Additionally, it should make changes to the way RESPA is litigated.
The full paper was previewed at a session at MBA’s 2024 Annual Convention and Expo in Denver on Oct. 28.