Pub. 7 2012-2013 Issue 5

www.nebankers.org 12 Extraordinary Service for Extraordinary Members. Affiliated Business Arrangements Under RESPA Aaron Johnson , Husch Blackwell LLP P ROVIDERS IN ALL SEGMENTS OF the home-buying and fi- nancing industry, includ- ing financial institutions, mortgage lenders, real estate broker- age firms, home builders, and title agents/underwriters, often seek to offer “one-stop shopping” for buy- ers and homeowners through joint ventures with other providers. In many instances, it is the financial institution that is approached by the broker, title agent, or homebuilder to establish this relationship. These affiliated business arrange- ments are regulated under the Real Estate Settlement Procedures Act (RESPA). When entering into affili- ated business arrangements, financial institutions should develop detailed compliance checklists and complete due diligence with respect to their co-venturers. In addition, financial institutions should monitor and su- pervise the business activities of these affiliated business arrangements. This article briefly summarizes the regulation of affiliated business arrangements under RESPA and discusses some of the common com- pliance issues associated with these arrangements. COUNSELOR’S CORNER Summary of RESPA Requirements Section 8(a) of RESPA, and Regu- lation X thereunder, 1 prohibit any person from giving or accepting any fee, kickback, or thing of value for the referral of settlement service business involving a federally related mortgage loan. 2 The Department of Housing and Urban Development (HUD) revised Regulation X in 1992 to, among other things, exempt cer- tain affiliated business arrangements from the requirements of Section 8. An affiliated business arrangement exists where a person who is in a position to refer settlement service business has either an affiliate relationship with or an ownership interest of more than 1 percent in a provider of settlement services and refers business to that provider or affirmatively influences the selection of that provider. 3 Affiliated business arrangements are exempt as long as: (1) disclosure of the arrangement and a written estimate of the pro- vider’s usual charges are given to the consumer; (2) the consumer is not required to use the controlled entity; and (3) the only thing of value re- ceived from the arrangement, other than payments for services rendered, is a return on ownership interest. 4 The RESPA regulations state that a return on ownership interest does not include payments that vary by the amount of actual, estimated, or anticipated referrals or payments based on ownership shares that have been adjusted on the basis of previous referrals. 5 HUD considers the follow- ing questions in determining whether a payment is a return on ownership interest or a prohibited referral fee: 1. Has each owner or participant in the new entity made an investment of its own capital, as compared to a loan froman entity that receives the benefits of referrals? 2. Have the owners or participants of the new entity received an owner- ship interest based on a fair value contribution? Or is it based on the