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RESPA Diligence Remains Important, But Experts Predict Fair Servicing to Get More Scrutiny

In an ongoing initiative to offer up expert commentary and opinion, we turned to trusted Cook & James experts and other authorities in the past to blog about topics ranging from cyber insurance, fair housing and working with builders, to tips from lenders and mortgage brokers. A couple of blogs about RESPA compliance and even one about holiday gift giving by our friend and colleague Loretta Salzano, a RESPA attorney, continue to get lots of eyeballs, so we thought with the new administration, changing CFPB leadership and the ongoing RESPA conversation, Loretta could share her expert thoughts and opinions once again.** We hope you enjoy and benefit from her expertise as much as we do!

I recently had the honor of presenting on RESPA Section 8 at MBA’s Legal Issues Conference. My workload confirms that RESPA Section 8 remains at the top of the hit parade for lenders, title insurers and settlement agents exploring new and even old ways to grow or sustain their business. Based on the presentations at the MBA conference and my own crystal ball, there is no indication RESPA Section 8 will be at the top of the list for the CFPB under a Biden Administration.

Uejio emphasized fair and equal treatment

Acting Director Uejio’s comments at the MBA conference reiterate the CFPB’s top priorities as those related to COVID relief and addressing systemic racial inequities. Together that translates into the CFPB’s focus on ensuring fair and equal treatment of borrowers coming out of COVID forbearance to avoid a wave of foreclosures.  The only RESPA issue that appears to be top of mind for the CFPB is loan servicers’ compliance with RESPA’s existing servicing rules and finalizing its servicing rule changes aimed at “preventing avoidable foreclosures as the emergency federal foreclosure protections expire,” according to an April CFPB press release.  

Industry is cautiously optimistic that a red hot real estate market will prevent a repeat of the tsunami of foreclosures following the mortgage meltdown of 2008, but default servicing attorneys and title professionals likely will soon see their funnels fill with back-end work when foreclosure is unavoidable. One thing is clear: foreclosure had better be a last resort and servicers better have the records to show they left no stone unturned.  

The wait is over: staff up and be prepared

For years we have been expecting an onslaught of fair servicing investigations and actions which never materialized. The wait is over.  Servicers must staff up and be prepared to demonstrate compliance with both the letter and the spirit of the law doing the delicate dance of treating all borrowers similarly while considering the unique circumstances of each.  Give it less than the college try, and it could mean trouble.

Just because the CFPB will be taking a closer look at fair servicing, don’t expect it to lessen its focus on fair lending.  It is staffing up, revving up and reviving previously sluggish or dormant investigations of every aspect of the loan manufacturing process that starts with hiring, office location and marketing. Real estate brokers whose presence drives lending business might be pulled into the fray especially if they are not serving majority minority communities. I would not be surprised to see fair housing and fair lending investigations reach arrangements of lenders and settlement agents aimed at garnering referral business. If so, that might be the door to more RESPA Section 8 enforcement in the name of fair lending.

TRID enforcement is also on the rise. That means settlement agents could see an uptick in Closing Disclosures corrections. They might even be required to bolster their processes to ensure timely and correct disclosures.

Déjà vu all over again?

President Biden’s choice of current FTC Commissioner Rohit Chopra to lead the CFPB has many pundits predicting a “Back to the Future” enforcement climate.  Those in the know expect the CFPB to rely on claims of unfair, deceptive and abusive acts and practices (“UDAAP”) when theories of technical compliance are tenuous. Plus, aggressive litigation on all fronts is predicted – perhaps even more than under the CFPB’s first Director, Richard Cordray. Do not be surprised to see the CFPB sue those clearly under its jurisdiction and also to expand its reach.  

And when the CFPB increases its reach, it sets the tone for other regulators - both federal and state.  Not without warning, the FDIC has been digging in on RESPA Section 8 enforcement. Many states have already formed their own mini-CFPBs which could be a trend. Long before these new mini-CFPBs, we’ve witnessed a closer look for RESPA Section 8 violations by state regulators.  Both federal and state examiners are scrutinizing even small players, so while it is reasonable for smaller companies to consider risk of detection when contemplating strategies to compete for business, no one is safe.

CFPB offering helpful guidance and FAQs

Gratefully, the CFPB seems to be more willing to provide guidance on tough issues.  One example is its RESPA FAQs published in 2020 focusing on marketing service agreements (MSAs), gifts and promotional activities which are some of the hottest topics on the RESPA Section 8 front. Unfortunately, the CFPB did not touch on the other most popular initiatives: co-marketing and lead generation, so for now we are left to read the tea leaves on those in a developing market.  

The title industry is also a developing market due to the proliferation of technology changing the landscape of how service providers market their services and how core title services are delivered.  Regulatory guidance is slim and outdated - their tenets almost unrecognizable when data and services can be delivered with a click.  Still, even in a new age of ardent and aggressive regulatory enforcement, I predict the title industry will need to worry more about competitors and less about regulators.  

When assessing any new initiative, it’s important to learn from history, gather current information about today’s landscape, know the players and consult industry thought leaders. The “new normal” we’ve come to know can be like shifting sand. As we now forge ahead, it is imperative to review and analyze data and other indicators of the CFPB’s path and purpose under new leadership when it comes to fairness and RESPA Section 8 compliance.

**Comments in this post are presented for informational purposes only and are not intended to constitute legal advice.  

Loretta Salzano is founding partner at Franzen and Salzano, P.C. whose practice includes RESPA-related matters, and she is proud to work often with Cook & James. She brings more than 30 years’ experience to the real estate industry and advises banks, mortgage lenders, real estate brokers, title agents and other settlement service providers on how to stay within the confines of the laws of all 50 states and federal law including, but not limited to, TILA, RESPA, ECOA and HMDA. She was named a Top Compliance Lawyer by Mortgage Compliance Magazine, is a Fellow of the American College of Consumer Financial Services Attorneys, and serves as Legal Counsel to the Mortgage Bankers Association of Georgia and to Rainbow Village, a transitional housing program. She is active in many industry, professional and civic associations and frequently speaks on mortgage issues nationwide. Loretta received her B.A. with High Distinction from the University of Michigan and her J.D. from the University of Michigan Law School.