Smart and Fair lenders seek to serve the consumers in their community well, by offering mortgage financing to those who are presently homebuyer ready and assist those who are not homebuyer ready but have a desire to one day achieve that goal. One way this has been done successfully is to partner with local non-profit housing counseling organizations. Recently, the CFPB had some opinions on these arrangements and guidance on how to make these agreements more RESPA friendly.
Lenders who have been proactive in serving the needs of their clients by establishing relationships with non-profit housing counseling organizations, realize the benefit that this relationship provides to the community. When a client is not home-buyer ready best practices should involve a lender providing organizations that can assist them in financial education or homebuyer readiness. HUD approved Non-Profit Counseling Agencies fill that need in the community. This type of program has been a long-standing practice of large mortgage lenders and banks for years.
It is clear that a non-profit organization cannot fulfill the large number of requests from those who need housing counseling assistance, without proper funding. Grants only go so far. The established precedent has been to allow these programs to provide services to consumers, and have those services paid for by the lenders who recommended counseling when the client applied and closed on a home loan. The lender paid a “fee for counseling services performed.” In fact, HUD addressed this specific issue in a published FAQ stating that this practice was acceptable and did not violate RESPA.
On March 29, 2017, the CFPB hosted a meeting at the request of Homeownership Preservation Foundation to address this issue. Apparently, concerns began to surface from the CFPB that this could be a RESPA Section 8 violation which prohibits “kickbacks.” The purpose of the meeting was to gain guidance and clarity on a program that has served our communities well. It seems there were some rumblings from the large bank lenders that this program may be an issue.
The CFPB staff expressed support for housing counseling and noted that they believe these programs can be structured to comply with Section 8 of RESPA. Buckley and Sandler offered Pro Bono legal services to prepare legal guidance to lenders from their meeting with the CFPB. I am attaching this document below, for your review.
In reading through the document, the bottom line seems to be that agreements need to be structured well. However, you should read through this entire document, and consult with your legal counsel before structuring or modifying any of your agreements.
- Not contain an exclusivity provision.
- Include non-exclusivity provisions that expressly allow the counseling agency to provide information on multiple lenders and products.
- Not include provisions requiring counseling agencies to include the lender on every list of options provided to a consumer.
- Not require the counseling agency to direct a consumer referred by a lender for counseling back to that same lender once counseling is complete. However, the counselor can let the lender know that counseling is complete and the lender could then contact the consumer.
- Not include provisions requiring the counseling agency to promote the lender.
- Not condition the lender’s payments on referrals.
These programs serve lenders, consumers and the resources needed in a community to make it thrive. Done well, and with regular follow-up from the lender to the consumer, you should have little concern that you are losing clients that you are trying to help become homebuyer ready. However, if you simply offer the service to a consumer and lose that client to another lender because you did not stay in contact with your client, then you have no one to blame but yourself. Good sales strategy involves great follow-up strategy!
Fair Lending Diversity is an expert in building out these types of fair lending strategies for lenders. Lenders have found strategies like this to assist them in correcting fair lending issues and allows them to keep in contact with clients that would normally be lost to the market. We have successfully worked with some of the top lenders on strategies to prevent profit leakage and enhance their fair lending initiatives. Contact us for more details!