62 FR 25740 - Amendments to Real Estate Settlement - U.S. by wuyunyi


									25740              Federal Register / Vol. 62, No. 90 / Friday, May 9, 1997 / Proposed Rules

DEPARTMENT OF HOUSING AND                  on the proposed information collection       Act delayed the effective date of the
URBAN DEVELOPMENT                          requirements in § 3500.15(b) of this         provisions of the Department’s June 7,
                                           proposed rule. Comments should refer         1996 final RESPA rule concerning
24 CFR Part 3500                           to the above docket number and title,        payments to employees by their
                                           and should be sent to the Office of          employers to no earlier than July 31,
[Docket No. FR–4173–P–01]
                                           Information and Regulatory Affairs,          1997.
RIN 2502–AG88                              Office of Management and Budget,                Although not required by the Act, on
                                           Attention: Desk Officer for HUD,             October 4, 1996 (61 FR 51782), the
Amendments to Real Estate Settlement       Washington, DC 20503.                        Department delayed temporarily the
Procedures Act Regulation: Exemption       FOR FURTHER INFORMATION CONTACT:             effective date of the entire June 7 final
for Employer Payments to Employees         David R. Williamson, Director, Office of     rule, as corrected and revised on August
Who Make Like-Provider Referrals and       Consumer and Regulatory Affairs, Room        12, 1996. The reason for the delay was
Other Amendments; Proposed Rule            9146, telephone (202) 708–4560; or,          to provide the Department with an
                                           for legal questions, Kenneth A.              opportunity to analyze the Act and
AGENCY:  Office of the Assistant
                                           Markison, Assistant General Counsel for      develop an appropriate time schedule
Secretary for Housing-Federal Housing
                                           GSE/RESPA, Grant E. Mitchell, Senior         for establishing the effective dates of the
Commissioner, HUD.
                                           Attorney for RESPA, or Richard S.            various provisions of the June 7 rule, as
ACTION: Proposed rule.                                                                  revised August 12.
                                           Bennett, Attorney, Office of General
SUMMARY: In this proposed rule, the        Counsel, Room 9262, telephone (202)             On November 4, 1996 (61 FR 56624),
Department is seeking comments on a        708–1550. (The telephone numbers are         the Department published another
new exemption under Regulation X, its      not toll-free.) For hearing- and speech-     notice in the Federal Register
regulation implementing the Real Estate    impaired persons, these numbers may          announcing that, consistent with the
Settlement Procedures Act of 1974          be accessed via TTY (text telephone) by      Act, the Department would shortly
                                           calling the Federal Information Relay        publish a revised final rule that would
(RESPA). The exemption would allow
                                           Service at 1–800–877–8339. The address       make effective those provisions of the
payments by an employer to its own
                                           for the above-listed persons is:             June 7 final rule that are unaffected by
bona fide employees for the referral of
                                           Department of Housing and Urban              the delay provisions of the legislation.
settlement service business to an
                                                                                        On November 15, 1996 (61 FR 58472),
affiliated settlement service provider,    Development, 451 Seventh Street, SW.,
                                                                                        the Department published a final rule in
provided that the settlement service       Washington, DC 20410.
                                                                                        the Federal Register making effective
business that is referred is the same
                                           SUPPLEMENTARY INFORMATION:                   certain portions of the June 7 final rule
category of settlement service as
                                           I. Background                                and August 12 technical revisions that
provided by the employer of the
                                                                                        were not delayed by the Act. The
employee making the referral, the             In the final rule published on June 7,    November 15, 1996 final rule put into
employee makes the affiliated business     1996 (61 FR 29238) entitled                  effect those portions of the June 7 final
arrangement disclosure as provided in      ‘‘Amendments to Regulation X, the Real       rule dealing with Computer Loan
24 CFR 3500.15, and the employee           Estate Settlement Procedures Act:            Origination (CLO) Systems. The
making the referral does not perform       Withdrawal of Employer-Employee and          November 15 final rule thereby
any other category of settlement service   Computer Loan Origination Systems            effectuated the withdrawal of the CLO
in the same transaction.                   (CLOs) Exemptions,’’ the Department          exemption and the elimination of the
   This rule also proposes to implement    withdrew a broad exemption for               CLO Fee Disclosure form. It also put
two amendments to RESPA in recent          payments by employers to their own           into effect the revised Appendix D to
legislation. One concerns referrals of     employees for any referral activities (24    part 3500 as published August 12, 1996.
settlement service business through        CFR 3500.14(g)(1)(vii)). In its place, the   Further, it made several technical
telemarketing, in writing, or through      rule established three narrower              revisions and corrections to Regulation
electronic media. The other concerns       exemptions for employer payments to          X.
mortgage servicing sales or transfers.     employees: (1) One for managerial               This proposed rule furthers the plans
The rule also describes additional         employees (§ 3500.14(g)(1)(viii) of the      indicated in the November 4, 1996
technical corrections and clarifications   June 7 rule); (2) One for employees who      notice to move forward as expeditiously
the Department intends to make at a        do not perform settlement services in        as possible, subject to the requirements
later date.                                any transaction (§ 3500.14(g)(1)(ix) of      of the Act, to establish new rules
DATES: Comment due date: July 8, 1997.     the June 7 rule); and (3) A provision        addressing employer payments to
ADDRESSES: Interested persons are          clarifying that ‘‘[a] payment by an          employees in lieu of the former broad
invited to submit comments regarding       employer to its own bona fide employee       exemption. It also proposes, in
this proposed rule to the Rules Docket     for generating business for that             conjunction with putting into effect the
Clerk, Office of General Counsel, Room     employer’’ is permissible                    revisions in the June 7 rule concerning
10276, Department of Housing and           (§ 3500.14(g)(1)(vii) of the June 7 rule).   employer payments to employees, to
Urban Development, 451 Seventh Street,     The rule was to have become effective        establish a new exemption. This
SW., Washington, DC 20410–0500.            on October 7, 1996, 120 days from            exemption would allow payments by an
Communications should refer to the         publication. (Note: The June 7 rule was      employer to its own bona fide
above docket number and title.             corrected and revised on August 12,          employees for the referral of settlement
Facsimile (FAX) comments are not           1996 (61 FR 41944).)                         service business to an affiliated
acceptable. A copy of each                    Section 2103 of the Economic Growth       settlement service provider, under the
communication submitted will be            and Regulatory Paperwork Reduction           following conditions: (1) The settlement
available for public inspection and        Act of 1996, (Title II of the Omnibus        service business that is referred is the
copying between 7:30 a.m. and 5:30         Consolidated Appropriations Act, 1997)       same category of settlement service as
p.m. weekdays at the above address.        (Pub. L. 104–208; approved September         provided by the employer of the
   The Department also invites             30, 1996) (the Act) was signed by the        employee making the referral; (2) The
interested persons to submit comments      President on September 30, 1996. The         employee makes the affiliated business
                    Federal Register / Vol. 62, No. 90 / Friday, May 9, 1997 / Proposed Rules                                    25741

arrangement disclosure in accordance          provide consistently that the AfBA           the broad exemption for employer
with 24 CFR 3500.15; and (3) The              disclosure statement must be provided        payments to employees for referrals and
employee does not perform any other           in accordance with § 3500.15(b).             its replacement with narrower
category of settlement service in the            This proposed rule also proposes to       exemptions would unduly restrict
same transaction. The Department              implement amendments to RESPA                compensation of bank employees for
anticipates that this new exemption will      contained in the Act. One amendment          making referrals to mortgage banking
become effective at the same time as the      concerns referrals through telemarketing     affiliates. A major trade association for
Department makes the changes that             and electronic media. The other              the banking industry, for example,
were delayed by the Act (i.e.,                amendment concerns mortgage                  raised concern that while a banker
eliminating the exemption for payments        servicing sales, assignments, or transfers   could compensate its employee for the
by an employer to its employees for           under section 6 of RESPA.                    referral of mortgage loan business to a
referral activities, currently codified as       Finally, the proposed rule proposes       mortgage lending division within the
24 CFR 3500.14(g)(1)(vii), and                some changes in response to section          bank, a banker would be prohibited
substituting the more limited                 2101 of the Act. In that section,            from compensating an employee for the
exemptions that the June 7 rule would         Congress mandated that the Department        referral of a bank customer to a mortgage
have codified as 24 CFR                       and the Federal Reserve Board (the           banking affiliate of the bank or a
3500.14(g)(1)(vii)-(ix))). The Act does       Board) work together to ‘‘simplify and       mortgage banking subsidiary of the
not permit the Department to make             improve’’ the disclosures given in a         parent holding company.
those changes before July 31, 1997, or to     mortgage transaction subject to the             The trade association urged the
announce an effective date for those          Truth in Lending Act (TILA) and              Department to reconsider making such a
provisions more than 180 days before          RESPA, and to create a unified format        distinction in its final rule, arguing that
the effective date.                           to satisfy the requirements of both          the distinction lacked justification or
   The Department also anticipates            statutes. On December 31, 1996, the          merit and, in essence, was solely based
making the following technical                Department and the Board published an        on the structure of the bank and the
clarifications and corrections to those       Advance Notice of Proposed                   location of the mortgage lending
provisions of the June 7 rule, as part of     Rulemaking (ANPR) on Improvement of          function within the banking institution.
the final rule that will make those           Disclosures Under RESPA and TILA (61         The trade association explained that the
provisions effective subject to the           FR 69055), in order to solicit               proposed rule would penalize banks,
requirements of the Act:                      suggestions from the public regarding        their affiliates, holding companies,
   (1) A technical clarification indicating   possible ways to simplify and improve        boards of directors, officers, and
that under the managerial exemption           disclosures required under the statutes.     employees solely because of their
(§ 3500.14(g)(1)(viii) of the June 7 rule),   The Department received 82 comments          corporate structures, which ‘‘are
a manager not routinely performing            from all sectors of the industry in          specifically authorized by statute,
settlement services may still receive         response to the ANPR. The preamble of        implemented by state or Federal bank
compensation under the exemption if           this rule describes how the Department       regulatory authorities and constantly
either: (1) The total value of the services   proposes to incorporate some of the          monitored and examined for safety and
provided by the manager does not              suggestions and recommendations              soundness and compliance purposes.’’
exceed 5 percent of the annual income         generated by the ANPR into this              The trade association argued:
to the office or unit for which the           proposed rule. The Department                  From the consumer’s perspective, the
manager is responsible attributable to        anticipates that other suggestions could     location of this mortgage lending activity
RESPA-covered transactions, or (2) the        be incorporated into subsequent              within the banking institution’s family of
manager performs settlement services in       rulemaking.                                  companies is irrelevant. The consumer’s
no more than three RESPA-covered                                                           objective is to obtain a mortgage loan. To the
                                                 The Department believes, however,         consumer and the bank, this is the business
transactions.                                 that significant simplification may only
   (2) A technical clarification indicating                                                of banking whether it takes place within the
                                              be possible through legislative changes      bank or as part of the banking institution’s
that in using the term ‘‘in any
                                              and will work with the Board in making       corporate family.
transaction’’ in the exemption for
                                              recommendations towards that end.               Since the Department’s promulgation
employees who do not perform
                                              Under the Act, Congress has required         of its final rule on June 7, 1996,
settlement services (§ 3500.14(g)(1)(ix)
                                              that the Department and the Board            withdrawing the broader exemption and
of the June 7 rule), the Department did
                                              recommend any legislation that would         establishing more limited exemptions,
not intend that an employee who has
                                              be necessary to accomplish the               similar concerns have been echoed by
stopped providing settlement services,
                                              objectives of simplifying and improving      others. A mortgage lending subsidiary of
an employee who changes jobs and no
                                              the disclosures subject to TILA and          a diversified financial services company
longer provides settlement services, or a
                                              RESPA. Both agencies are currently           indicated that for various business and
new employee is forever prohibited
                                              considering several approaches to            regulatory reasons, it offers its services
from receiving compensation for
                                              streamlining the disclosure                  through more than one corporate entity.
   (3) A technical correction                 requirements.                                It argued that bank branch personnel
redesignating ‘‘Controlled Business           II. Proposed Exemption for Like-             should be able to receive compensation
Arrangements’’ as ‘‘Affiliated Business       Provider Referrals                           for referring customers who enter the
Arrangements’’ or ‘‘AfBAs,’’ reflecting                                                    branch and inquire about a first
the change in terminology in section          A. Description of Problem                    mortgage loan to the mortgage lending
2103(c) of the Act.                             The Department published a proposed        subsidiary. It pointed out that there is
   (4) A technical correction relating to     rule on July 21, 1994 (59 FR 37360) to       no danger of adverse steering since the
the timing of providing the AfBA              revise Regulation X. During the              customer is provided the controlled
disclosure, to conform the language of        comment period on the Department’s           business disclosure (now referred to as
the regulation and Appendix B more            July 21, 1994 proposed rule, some            the Affiliated Business Arrangement
closely to the statutory language as          commenters raised concern that the           Disclosure Statement or AfBA
revised in section 2103(d) of the Act, to     Department’s proposed withdrawal of          Disclosure Statement), which alerts the
25742                 Federal Register / Vol. 62, No. 90 / Friday, May 9, 1997 / Proposed Rules

customer that he or she is dealing with          covered by RESPA. (Part V(B) of this         service’’ in § 3500.2 as proposed to be
the mortgage lending subsidiary; from            preamble discusses the meaning of ‘‘in       revised), referrals from one real estate
the customer’s perspective, the loan is          any transaction.’’)                          agent or broker to another are generally
still from the bank.                                In light of certain of the expressed      exempt pursuant to section 8(c)(3) of
   A major bank made essentially the             concerns, the Department is proposing        RESPA (12 U.S.C. 2607(c)(3)) and 24
same arguments. It faulted the June 7            to exercise its exemption authority          CFR 3500.14(g)(1)(v) of the RESPA
rule for failing to accommodate the              under RESPA, to add a new exemption          regulations. Because the section 8(c)(3)
practice of referral of loan business by         to section 8 of RESPA’s prohibition          exemption already exists, the referral of
a lender to its affiliate. In a letter to the    against kickbacks and unearned fees.         services by a real estate agent or real
Department, the bank stated:                     The Secretary has authority to create        estate broker to another real estate agent
   We believe that when a consumer comes to      exemptions under section 19(a) of
[the bank] to inquire about mortgage
                                                                                              or real estate broker is not included
                                                 RESPA for classes of transactions as         under the new exemption. In addition,
financing, whether to purchase a home or         may be necessary to achieve the
refinance an existing mortgage, the consumer                                                  real estate agents are usually
                                                 purposes of RESPA (12 U.S.C. 2617(a)).
has come to us because of our name and                                                        independent contractors, and thus
reputation. Whether contact is made in           In addition, under section 8(c)(5) of
                                                                                              would not be considered ‘‘employees’’
person at a branch office, by phone, or over     RESPA, the Secretary may create
                                                                                              eligible for this exemption for employer
the Internet, the consumer expects to learn      regulatory exemptions for ‘‘such other
about [bank] loan products that meet his or      payments or classes of payments,’’ after     payments to employees.
her financing needs, regardless of whether       consulting with various Federal                 In addition, paragraph (b)(16) of the
such loans are marketed, originated or           agencies (12 U.S.C. 2607(c)(5)). The         definition of ‘‘settlement service’’ in
serviced by different * * * legal entities. It   exemption to be created under this           § 3500.2 as proposed to be revised
makes little or no difference to our borrowers
                                                 proposed rule, like the exemptions           includes as a settlement service ‘‘other
which * * * subsidiary originates their
loans or whether their original contact was a    promulgated June 7, would be issued          services for which a settlement service
loan officer employed by a different             pursuant to the Secretary’s clear            provider requires a borrower or seller to
subsidiary. * * *                                authority to create reasonable               pay.’’ This catchall, however, is too
   Without a change to the final rule, we will   exemptions to further the purposes of        open-ended to apply to the new
be forced into a costly reorganization to        RESPA.                                       exemption proposed. Commenters are
create a permissible compensation structure.        Under the proposed exemption,             encouraged to provide examples of
We would either have to staff each branch        § 3500.14(g)(1) would be amended by
with one or more mortgage lending division                                                    other settlement services that would
                                                 adding an exemption for a payment by         qualify under paragraph (b)(16). The
loan officers, or originate and book mortgage
loans in each branch where the initial           an employer to its bona fide employee        Department will consider the examples
inquiry was made. In either case, any            for referring settlement service business    submitted and possibly add them to the
potential economies would be eliminated          to a settlement service provider that has    list of categories of settlement services
without adding value or convenience for our      an affiliate relationship with the           enumerated in the definition so that
customers.                                       employer, or in which the employer has       referrals of such services may qualify for
B. Proposed Solution                             a direct or beneficial ownership interest    the new exemption proposed.
                                                 of more than 1 percent, if the following
   Under the June 7 rule, if a bank              conditions are met:                             As with the exemptions contained in
customer asks a loan officer who                    1. The settlement service business        the June 7 rule, this additional
provides settlement services in any              that is referred is the same category of     exemption only pertains to bona fide
transaction about a type of loan that the        settlement service that the employer of      employees. Individuals may not be
bank does not make, but which the                the employee making the referral             hired on a part-time basis to make
bank’s affiliate does make, the bank             provides;                                    referrals because of their access to
would have been precluded from                      2. The employee provides to the           consumers as settlement service
compensating the loan officer for                person being referred the affiliated         providers and then be compensated for
making the referral to the appropriate           business arrangement disclosure in           such referrals. Sham employment
affiliate. However, the June 7 rule would        accordance with § 3500.15(b); and            arrangements are also prohibited. See 61
have created an exemption to the                    3. The employee making the referral       FR 29243 (column 3). Moreover, the
prohibition against referral fees for            does not perform any other category of       exemption does not affect the
employer payments to employees who               settlement service in the same               prohibition in 24 CFR 3500.14(b) against
do not perform settlement services in            transaction.                                 the entity to which business is referred
any transaction and who refer                       The rule would specify that, for          from compensating the affiliate or the
settlement service business to an                purposes of this exemption, each             employee of the affiliate making the
affiliate, so long as the controlled             paragraph in the definition of               referral.
business arrangement disclosure is               ‘‘settlement service’’ provided in 24 CFR
provided. Thus, an employee of a bank            3500.2(b) (excluding paragraphs (b)(15)         It is anticipated that when the
could have referred a bank customer to           and (b)(16) of that definition), as it is    Department makes this proposed rule
a mortgage banking affiliate of the bank         proposed to be revised, constitutes a        final, it will do so in a rule that will also
or a mortgage banking subsidiary of the          separate ‘‘category of settlement            make effective the changes to the
parent holding company and could have            service.’’ Some ‘‘categories of settlement   exemptions for employer payments to
received referral-based compensation.            services’’ to which this exemption might     employees as contained in the June 7
The only restrictions would have been            commonly apply would include                 rule, subject to any further technical
that the controlled business                     originating mortgage loans, providing        corrections or clarifications to such
arrangement disclosure would have to             services involving hazard insurance,         exemptions that the Department may
be provided, and, if the employee was            and providing title services.                announce. The language of the June 7
to be compensated for the referral, the             While the rendering of services by a      rule and the technical corrections and
employee could not be one who                    real estate agent or real estate broker is   clarifications are not republished here,
performed settlement services in any             a settlement service (see paragraph          since the Department is not requesting
residential real estate transaction              (b)(15) of the definition of ‘‘settlement    comments on them.
                    Federal Register / Vol. 62, No. 90 / Friday, May 9, 1997 / Proposed Rules                                 25743

C. Questions for Commenters                   refinements of the categories would          an acknowledgement for the person
   The Department is particularly             ensure that the purposes of the              being referred to sign. It also specifies
interested in comments on the following       exemption are fulfilled? Does the            that the person making the referral must
issues:                                       Department’s proposal provide adequate       request that the person being referred
   1. What potential disadvantages or         guidance as to what is the ‘‘same            sign the disclosure promptly and return
dangers, if any, would the exemption for      category of settlement service?’’ How        it to the affiliate making the referral or
employer payments to employees who            could this point be clarified further?       a designated addressee, and must
make like-provider referrals pose for         What specific categories of settlement       provide information on where to send
consumers? As summarized above, it            services would fall under paragraph          the signed disclosure.
                                              (b)(16) of the definition of ‘‘settlement       Consistent with the Act, the proposed
has been argued by members of the
                                              service’’ in § 3500.2 (‘‘provision of any    rule provides that, in the case of a face-
settlement service industry that in the
                                              other services for which a settlement        to-face referral or a referral made in
types of referrals covered by the
                                              service provider requires a borrower or      writing or by electronic media, the
proposed rule, there is little danger of
                                              seller to pay’’), as it is proposed to be    written disclosure must be provided at
adverse steering or adverse
                                              revised?                                     or before the time of the referral. In the
consequences to customers. However,
                                                5. Since the concerns which resulted       case of a referral made by telephone, an
the Department would like to hear from        in this proposed new exemption came          abbreviated verbal disclosure also must
those with other views, including those       mainly from lenders, should the              be made during the telephone referral
with additional bases in support of such      Department narrow the scope of the           that, in clear and understandable
an exemption.                                 exemption being proposed to apply only       language: (1) Specifies the nature of the
   2. The Department seeks comments           to lenders? What problems would other        relationship (explaining the ownership
on whether a potential danger is created      settlement service providers face if the     and financial interest) between the
for consumers that, through the design        exemption were limited in this fashion?      entity making the referral and the entity
of compensation systems, the exemption          6. The exemption, as proposed, would       performing settlement services (or
could cause greater steering of               not apply in situations in which a bank      business incident thereto); (2) explains
consumers to products that are more           that does not originate any mortgage         that because of this relationship, this
profitable for the entity making or           loans refers customers seeking mortgage      referral may provide a financial or other
receiving the referral, but that are not      loans to the bank’s mortgage lending         benefit to the referring party; (3) states
necessarily in the consumer’s best            subsidiary. In such cases, the referring     that the existence of this relationship
interest. For example, a loan officer of      bank does not originate mortgage loans,      does not require that the person being
a lender that makes home equity loans         and thus does not perform settlement         referred use the provider to whom he or
might receive a $50 bonus for every           service business in the same category as     she is being referred as a condition of
home equity loan closed. In contrast, the     the business being referred. Should the      settlement of the loan, or purchase, sale,
same loan officer might receive a $100        exemption be expanded to allow               or refinance of the property, as
bonus for referring a customer who            compensation for such referrals?             applicable; and (4) advises that a written
inquires about a home equity loan to an                                                    disclosure will be provided within 3
affiliate of the lender that will refinance   III. Referrals Involving Telemarketing
                                              and Electronic Media                         business days. Different timing
the primary mortgage, or $150 if he or                                                     provisions for providing the written
she could originate the refinance of the         This proposed rule would revise           disclosure are contained in
primary mortgage in the name of the           § 3500.15(b)(1) of the RESPA regulations     § 3500.15(b)(2) (iii)–(iv) of this proposed
affiliate (and do only a minimum of           to conform to changes to RESPA made          rule. These exceptions, which are
work regarding origination of the loan).      in section 2103(d) of the Act. Section       simply a continuation of exceptions
Please comment on whether this                2103(d) of the Act primarily amended         contained in prior rules regarding
exemption would create a danger that          section 8(c)(4)(A) of RESPA (12 U.S.C.       provision of such disclosure, involve
consumers will be steered for reasons         2607(c)(4)(A)) to establish special          referrals by a lender and situations
other than what is in their best interest,    procedures for disclosures of affiliated     involving an attorney or law firm that
and if so, how this danger may be             business arrangements in conjunction         requires a client to use a particular title
lessened or eliminated. Also comment          with referrals in which the telephone or     insurance agent or company.
on whether not creating this exemption        electronic media are used in marketing.         Consistent with the Act, in all cases
would create different dangers for            The proposed rule would set forth the        the person being referred must sign the
consumers, such as situations in which        new provisions regarding the timing of       disclosure. The person being referred
consumers who would benefit from              providing the disclosure, the methods of     should sign the disclosure at the time
referrals will not be referred because        providing the disclosure, and the            that the disclosure is provided. If the
some employees who would be in a              evidence needed to substantiate that the     person being referred chooses not to
position to make referrals would not be       disclosure was provided.                     sign the disclosure at the time that the
compensated for doing so.                        The proposed rule would, consistent       disclosure is provided, the signature of
   3. What are the advantages and             with the Department’s prior rules,           the person being referred must be
disadvantages of limiting the exemption       require that the Affiliated Business         obtained at or before closing or
to those employees who do not perform         Arrangement Disclosure Statement be          settlement.
any other category of settlement service      provided in writing on a separate piece         The proposed rule also provides that
in the same transaction, as proposed?         of paper, and in the format set forth in     if a notation was made at the time that
Should the Department narrow the              Appendix D to part 3500. In proposing        the disclosure was provided, in a
exemption by limiting it to those             to revise § 3500.15(b)(1) to be consistent   written, electronic, or similar system of
employees who do not perform any              with the Act, the Department is also         records maintained in the regular course
settlement service in the same                proposing to clarify the required            of business, that notation may be used
transaction?                                  elements of a proper affiliated business     as evidence that the disclosure was
   4. The Department recognizes that          disclosure, as provided in Appendix D,       provided at the time of the referral.
there could be some overlap among the         which specifically includes the              Such a notation is to include a
16 categories in the proposed rule. What      requirement that the disclosure contain      statement that the person being referred
25744              Federal Register / Vol. 62, No. 90 / Friday, May 9, 1997 / Proposed Rules

chose not to sign the disclosure at the      contain the Department’s                      referring to this three-transaction
time that it was provided. The existence     recommendations for statutory                 guideline.
of such a notation, however, does not        amendments, the Department is also               Following publication of the June 7
substitute for obtaining a signature at or   considering whether the disclosure            rule, the Department has found that
before closing or settlement. In the case    might be combined with other RESPA or         setting as a guide a fixed, maximum
of a face-to-face referral, if the person    Truth In Lending Act (TILA)                   number of transactions for all managers
being referred chooses not to sign the       disclosures, consistent with section          under the Department’s rule would
disclosure at the time that the disclosure   2101 of the Act. In addition, if              unduly interfere with the functioning of
is provided, such notation is mandatory.     commenters propose that the                   offices. Roles and functions are not
                                             Department should continue to require         rigidly specified and because of
IV. Sales or Transfers of Mortgage                                                         departures, absences for illnesses, or
                                             more information in the disclosure than
Servicing                                                                                  other reasons, a manager may be called
                                             in the format proposed, they should
   This proposed rule also proposes to       address what the Department’s authority       upon to complete transactions in
revise the RESPA regulations to reflect      to do so would be in light of the             process or otherwise become involved
an amendment to section 6 of RESPA,          statutory amendment in section 2103(a)        in troublesome transactions, in addition
set forth in section 2103(a) of the Act.     of the Act.                                   to any personal transactions the
Section 6(a), as amended, requires             In a related matter, section 2103(e)        manager might otherwise undertake.
disclosure to applicants regarding the       establishes a 3-year limitation on the        Accordingly, the Department agrees that
possibility of the assignment, sale, or      time aggrieved borrowers or classes of        a manager who does not routinely deal
transfer of the rights to service the        borrowers could bring actions under           with the public may perform greater
applicant’s federally related mortgage       section 6 of RESPA. Inasmuch as this          than three transactions and still remain
loan. Prior to the amendment, section 6      limitation is longer than the statute of      eligible for the managerial exemption. A
also provided that an applicant for a        limitations for other actions by              more appropriate guideline is that a
mortgage loan had to be provided a           individuals under RESPA (1 year), a           manager not routinely performing
disclosure of the lender’s historical        new paragraph (f)(1)(iv) would be added       settlement services may still receive
practice in assigning, selling, and          to § 3500.21 of the regulations to            compensation under the exemption if
transferring servicing of loans, or, as an   highlight this provision.                     either: (1) the total value of the services
alternative to providing the historical                                                    provided by the manager does not
data, a statement that the lender had        V. Additional Technical Corrections
                                                                                           exceed 5 percent of the annual income
previously sold servicing. A signed          and Clarifications Contemplated
                                                                                           to the office or unit for which the
acknowledgment of receipt of the               In addition to the proposed revisions       manager is responsible attributable to
disclosure statement was also required       described in the preceding portions of        RESPA-covered transactions, or (2) the
in the applicant’s loan file. The Act        this preamble, the Department intends         manager performs settlement services in
eliminates the historical data provisions    that when it makes effective the              no more than three RESPA-covered
and the acknowledgment requirement.          provisions of the June 7 rule amending        transactions.
   This proposed rule would implement        RESPA regulations concerning employer            In publishing the final rule, the
the statutory amendment by striking          payments to employees, the Department         Department will clarify this point.
language in § 3500.21 to make it             will make further technical corrections
consistent with the statutory                and clarifications to the June 7 rule.        B. In Any Transaction
amendment. The rule proposes to revise       While these technical corrections and            The final rule will put into effect the
Appendix MS–1 to part 3500, the model        clarifications are described below for        exemption promulgated in the June 7
Servicing Disclosure Statement format,       informational purposes, the text is not       rule to the otherwise applicable
to conform to the amendment. This            published here, since the Department is       prohibition against kickbacks and
proposed rule recognizes that certain        not requesting comments on them.              unearned fees. The exemption applies
entities do not undertake loan servicing                                                   in affiliate relationships and allows
and, therefore, transfer servicing before    A. Routine Dealing                            payments made to employees who do
the first payment is due; the disclosure        The Department has been asked about        not perform settlement services ‘‘in any
format may so state. The disclosure          language in the preamble and in               transaction’’ and who provide the
format in its revised form would be          Appendix B, ‘‘Illustrations of the            disclosure statement (24 CFR
published in the Code of Federal             Requirements of RESPA,’’ regarding the        3500.14(g)(1)(ix)). The use of the term
Regulations for the convenience of           definition of a managerial employee as        ‘‘in any transaction’’ has created
compliance by affected parties. In           an ‘‘employee * * * who does not              concern for some affiliated settlement
response to comments received                routinely deal directly with                  service providers regarding the breadth
pursuant to the ANPR urging the              consumers * * *.’’ This definition            of the restriction.
Department to consolidate the Mortgage       applies to the exemption for employer            The Department sought to provide
Servicing Disclosure with other RESPA        payments to managerial employees              this exemption to those who were not
forms, the proposed rule furthers            (§ 3500.14(g)(1)(viii) of the June 7 rule).   currently involved in the provision of
section 2101 of the Act by proposing to      In the preamble to the Department’s           settlement services. Therefore, when the
clarify that the format language may also    June 7, 1996 rule (61 FR 29245; bottom        Department puts this exemption into
be included as part of the Good Faith        of middle column) the Department              effect in the final rule, it will clarify that
Estimate.                                    stated, ‘‘HUD intends this phrase (‘does      it does not intend, by the use of the term
   The Department is interested in           not routinely’) to allow a managerial         ‘‘in any transaction,’’ that if an
comments addressing alternative              employee who performs and is                  employee performs settlement services
approaches to implementing the               compensated for occasional settlement         one time in his or her life, he or she
statutory language while protecting          services (not more than three                 shall forever lose the ability to receive
consumers. In connection with the            transactions a year) to be eligible for the   payments pursuant to this exemption.
report to Congress which the                 exemption.’’ The last sentence of             Rather, in publishing the final rule the
Department is developing pursuant to         Appendix B, illustration 12 of the June       Department will clarify that it intends
section 2101 of the Act, which will          7 rule also contained a statement             the ‘‘in any transaction’’ language to
                    Federal Register / Vol. 62, No. 90 / Friday, May 9, 1997 / Proposed Rules                                25745

allow an employee who has performed           illustration 12 (‘‘at the time of the        recordkeeping hour burden would be
settlement services in the past to qualify    referral’’).) The Department will            240,000 hours (2.4 million annual
for the exemption in any of the               conform the language of the regulation       responses at 6 minutes per response).
following types of circumstances:             and Appendix B more closely to the           The provisions of § 3500.15(b) of this
   1. No longer providing settlement          statutory language as revised in section     proposed rule regarding the Affiliated
services. This type of circumstance           2103(d) of the Act, to provide               Business Arrangement Disclosure would
involves an employee who has not              consistently that the AfBA disclosure        simply clarify the timing and the
performed settlement services for his or      statement must be provided in                methods of providing the disclosure,
her current employer (in the same job         accordance with § 3500.15(b).                and the evidence needed to substantiate
position) in any transaction for 1 year or       Section 3500.15(b) sets forth the         that the disclosure was provided, in
more. OR                                      applicable time frames for providing the     circumstances in which the referral is
   2. An employee who changes jobs.           disclosure. This provision requires, in      made over the telephone or through
This type of circumstance involves an         the case of a face-to-face referral or a     electronic media. The Department does
employee who performed settlement             referral made in writing or by electronic    not anticipate that the provisions of
services for his or her employer in the       media, providing a written disclosure at     § 3500.15(b) of this proposed rule will
past but, although still employed by the      or before the time of the referral, except   increase the number of annual burden
same employer, changes jobs so that he        in cases of a referral by a lender or        hours described above. The Department
or she no longer holds the former             situations involving an attorney or law      has, however, submitted the information
position and does not perform                 firm that requires a client to use a         collection requirements in § 3500.15(b)
settlement services in the new position.      particular title insurance agent. In the     of this proposed rule to OMB for review
OR                                            case of a telephone referral, a written      under the Paperwork Reduction Act and
   3. A new employee. This type of            disclosure must be provided within 3         the procedures set forth in 5 CFR part
circumstance involves an employee who         business days after the referral by          1320. As required by the Paperwork
performed settlement services for             telephone and an abbreviated verbal          Reduction Act, interested persons are
another employer on a past job, but no        disclosure must be made during the           invited to submit comments according
longer holds that job or works for that       telephone referral. The change that will     to the instructions in the DATES and
employer, and does not perform                be included in the final rule will           ADDRESSES sections in the preamble of
settlement services on his or her current     eliminate the use of inconsistent            this proposed rule. The Department
job for the new employer.                     terminology and will conform the             specifically requests comments on the
   In publishing the final rule the           description of the timing for providing      following:
Department also will clarify that, as         the disclosure to be consistent with           (1) Whether the proposed collection
explained in the preamble to the June 7       section 8(c)(4) of RESPA, as amended by      of information is necessary for the
rule (61 FR 29243), under all these           section 2103(d) of the Act.                  proper performance of the functions of
circumstances, the employment                                                              the Department, including whether the
relationship must be bona fide and not        Findings and Certifications                  information will have practical utility;
a sham designed to facilitate kickbacks       Executive Order 12866                          (2) The accuracy of the Department’s
among affiliated companies. Otherwise,                                                     estimate of the burden of the proposed
the exemption will not apply.                    The Office of Management and Budget       collection of information;
                                              (OMB) reviewed this proposed rule              (3) How to enhance the quality,
C. ‘‘Affiliated Business Arrangement’’        under Executive Order 12866,                 utility, and clarity of the information to
   The Department will make a technical       Regulatory Planning and Review, issued       be collected; and
correction required by an amendment to        by the President on September 30, 1993.        (4) How to minimize the burden of the
RESPA in section 2103(c) of the Act.          OMB determined that this rule is a           collection of information on those who
That legislation redesignated                 ‘‘significant regulatory action,’’ as        are to respond, including through the
‘‘Controlled Business Arrangements’’ as       defined in section 3(f) of the Order         use of appropriate automated,
‘‘Affiliated Business Arrangements’’ or       (although not economically significant,      electronic, mechanical, or other
‘‘AfBAs.’’ The final rule will incorporate    as provided in section 3(f)(1) of the        technological collection techniques or
into the RESPA rules the term                 Order). Any changes made in this rule        other forms of information technology,
‘‘affiliated business arrangement’’           subsequent to its submission to OMB          e.g., permitting electronic submission of
instead of the term ‘‘controlled business     are identified in the docket file, which     responses.
arrangement’’ used in the June 7 rule,        is available for public inspection             The information collection
completing the process of changing the        between 7:30 a.m. and 5:30 p.m.              requirements in § 3500.21 of this
terminology begun in the November 15,         weekdays in the Office of the Rules          proposed rule also have been approved
1996 rule (61 FR 58472).                      Docket Clerk, Office of General Counsel,     by OMB, and assigned OMB control
                                              Room 10276, Department of Housing            number 2502–0458. The rule does not
D. Timing of Affiliated Business              and Urban Development, 451 Seventh           propose to make changes to the
Arrangement Disclosure                        Street, SW, Washington, DC.                  information collection requirements set
   The Department will make a technical                                                    forth in § 3500.21. The rule proposes to
correction relating to the timing of          Paperwork Reduction Act                      make changes to the Servicing
providing the AfBA disclosure. The              The information collection                 Disclosure Statement format described
June 7 rule used inconsistent language        requirements contained in § 3500.15(b)       in this section, but this format is a
to describe when the disclosure was to        prior to this proposed rule have been        model format and is not required to be
be provided. (See 24 CFR                      approved by the Office of Management         used. The OMB approval number for
3500.14(g)(1)(ix)(A)(2) (‘‘before the         and Budget (OMB) under the Paperwork         this section is also in the process of
referral’’); 24 CFR 3500.15(b)(1) (‘‘prior    Reduction Act of 1995 (44 U.S.C. 3501–       being renewed in accordance with the
to the referral,’’ ‘‘no later than the time   3520), and assigned OMB control              procedures set forth in OMB’s
of each referral,’’); Appendix B,             number 2502–0516. In securing that           regulations implementing the
illustration 11 (‘‘at or before the time      approval, the Department had estimated       Paperwork Reduction Act of 1995 and
that the referral is made’’); Appendix B,     that the annual reporting and                codified at 5 CFR part 1320.
25746              Federal Register / Vol. 62, No. 90 / Friday, May 9, 1997 / Proposed Rules

Environmental Impact                          Accordingly, for the reasons set out in        loan upon disability or death of a
   In accordance with 24 CFR 50.19(c)(1)    the preamble, part 3500 of Title 24 of           borrower, but only if such insurance is
of the Department’s regulations,            the Code of Federal Regulations is               required by the lender as a condition of
published in a final rule on September      proposed to be amended as follows:               the loan;
27, 1996 (61 FR 50914), this proposed                                                           (14) Provision of services involving
                                            PART 3500—REAL ESTATE                            real property taxes or any other
rule does not direct, provide for
                                            SETTLEMENT PROCEDURES ACT                        assessments or charges on the real
assistance or loan and mortgage
insurance for, or otherwise govern or                                                        property;
                                              1. The authority citation for 24 CFR              (15) Rendering of services by a real
regulate property acquisition,              part 3500 continues to read as follows:          estate agent or real estate broker; and
disposition, lease, rehabilitation,           Authority: 12 U.S.C. 2601 et seq.; 42 U.S.C.      (16) Provision of any other services
alteration, demolition, or new              3535(d).                                         for which a settlement service provider
construction, or set out or provide for                                                      requires a borrower or seller to pay.
standards for construction or                  2. In § 3500.2, paragraph (b) is
construction materials, manufactured        amended by revising the definition of            *      *     *     *     *
housing, or occupancy. Therefore, this      ‘‘Settlement service’’ to read as follows:          3. Section 3500.14 is amended by
proposed rule is categorically excluded                                                      adding and reserving new paragraphs
                                            § 3500.2   Definitions.                          (g)(1)(viii) and (g)(1)(ix), and by adding
from the requirements of the National
Environmental Policy Act.                   *      *    *     *      *                       a new paragraph (g)(1)(x), to read as
                                               (b) * * *                                     follows:
Regulatory Flexibility Act                     Settlement service means any service
                                            provided in connection with a                    § 3500.14 Prohibition against kickbacks
   The Secretary, in accordance with the                                                     and unearned fees.
Regulatory Flexibility Act (5 U.S.C.        prospective or actual settlement,
                                            including any one or more of the                 *      *     *     *     *
605(b)), has reviewed this proposed rule                                                        (g) * * *
before publication and by approving it      following:
                                               (1) Origination of a federally related           (1) * * *
certifies that this rule would not have a                                                       (viii) [Reserved]
significant economic impact on a            mortgage loan (including, but not
                                                                                                (ix) [Reserved]
substantial number of small entities,       limited to, the taking of loan                      (x)(A) A payment by an employer to
other than those impacts specifically       applications, loan processing, and the           its bona fide employee for the referral of
required to be applied universally by       underwriting and funding of such                 settlement service business to a
the RESPA statute. In this proposed         loans), or rendering of services by a            settlement service provider that has an
rule, the Department strives to provide     mortgage broker (including counseling,           affiliate relationship with the employer
flexible requirements in order to reduce    taking of applications, obtaining                or in which the employer has a direct
any burden on small entities.               verifications and appraisals, and other          or beneficial ownership interest of more
                                            loan processing and origination                  than 1 percent, if the following
Executive Order 12612, Federalism           services, and communicating with the             conditions are met:
  The General Counsel, as the               borrower and lender);                               (1) The settlement service business
Designated Official under section 6(a) of      (2) Provision of title services,              that is referred is the same category of
Executive Order 12612, Federalism, has      including title searches, title                  settlement service that the employer of
determined that the policies contained      examinations, abstract preparation,              the employee making the referral
in this proposed rule would not have        insurability determinations, and the             provides;
substantial direct effects on States or     issuance of title commitments and title             (2) The employee provides to the
their political subdivisions, or the        insurance policies;                              person being referred the affiliated
relationship between the Federal               (3) Rendering of services by an               business arrangement disclosure in
Government and the States, or on the        attorney;                                        accordance with § 3500.15; and
distribution of power and                      (4) Preparation of documents,                    (3) The employee making the referral
responsibilities among the various          including notarization, delivery, and            does not perform any other category of
levels of government. As a result, the      recordation;                                     settlement service (including a service
proposed rule is not subject to review         (5) Rendering of credit reports;              described by paragraph (b)(15) or (b)(16)
under the Order.                               (6) Rendering of appraisals;                  of the definition of ‘‘Settlement service’’
                                               (7) Rendering of inspections,                 in § 3500.2(b)) in the same transaction.
Unfunded Mandates Reform Act                including inspections required by                   (B) For purposes of this paragraph
   Title II of the Unfunded Mandates        applicable law or any inspections                (g)(1)(x), each service described in the
Reform Act of 1995 (Pub. L. 104–4;          required by the sales contract or                definition of ‘‘Settlement service’’ in
approved March 22, 1995) (UMRA)             mortgage documents prior to transfer of          § 3500.2 (b)(1) through (b)(15)
establishes requirements for Federal        title;                                           constitutes a different category of
agencies to assess the effects of their        (8) Conducting of settlement by a             settlement service that may qualify for
regulatory actions on State, local, and     settlement agent and any related                 this exemption.
tribal governments, and the private         services;                                        *      *     *     *     *
sector. This rule does not impose any          (9) Provision of services involving              4. Section 3500.15 is amended by
Federal mandates on any State, local, or    mortgage insurance;                              revising paragraph (b)(1); by
tribal governments, or on the private          (10) Provision of services involving          redesignating paragraphs (b)(2) and
sector, within the meaning of the           hazard or other casualty insurance;              (b)(3) as paragraphs (b)(5) and (b)(6),
UMRA.                                          (11) Provision of services involving          respectively; and by adding new
                                            flood insurance;                                 paragraphs (b)(2) through (b)(4); to read
List of Subjects in 24 CFR Part 3500           (12) Provision of services involving          as follows:
  Condominiums, Consumer protection,        homeowner’s warranties;
Housing, Mortgages, Mortgage servicing,        (13) Provision of services involving          § 3500.15 Affiliated business
Reporting and recordkeeping                 mortgage life, disability, or similar            arrangements.
requirements.                               insurance designed to pay a mortgage             *    *     *     *     *
                     Federal Register / Vol. 62, No. 90 / Friday, May 9, 1997 / Proposed Rules                                   25747

   (b) * * *                                       (iii) In the case of a referral by a      § 3500.21   Mortgage servicing transfers.
   (1) The person making a referral             lender (including a referral by a lender     *      *     *     *     *
provides to each person being referred          to an affiliated lender) the disclosure         (b) Servicing Disclosure Statement;
a written disclosure on a separate piece        may be provided at the time that the         Requirements. (1) At the time an
of paper, in the format of the Affiliated       good faith estimate required under           application for a mortgage servicing
Business Arrangement Disclosure                 section 5(c) of RESPA (12 U.S.C. 2604)       loan is submitted, or within 3 business
Statement set forth in Appendix D to            is provided.                                 days after submission of the application,
this part. The person making the referral          (iv) In the case of an attorney or law    the lender, mortgage broker who
must request that the person being              firm that requires a client to use a         anticipates using table funding, or
referred sign the disclosure promptly           particular title insurance agent, the        dealer who anticipates a first lien dealer
and return it to the affiliate making the       attorney or law firm shall provide the       loan shall provide to each person who
referral or a designated addressee, and         written disclosure no later than the time    applies for such a loan a Servicing
must provide information on where to            the attorney or law firm is engaged by       Disclosure Statement. A format for the
send the signed disclosure. The                 the client.                                  Servicing Disclosure Statement appears
disclosure shall:                                  (3)(i) Signature. In all cases, the       as Appendix MS–1 to this part. The
   (i) Specify the nature of the                person being referred must sign the          specific language of the Servicing
relationship (explaining the ownership          disclosure. The person being referred        Disclosure Statement is not required to
and financial interest) between the             should sign the disclosure at the time       be used, and the statement may be
person performing settlement services           that the disclosure is provided. If the      included in the Good Faith Estimate
(or business incident thereto) and the          person being referred chooses not to         required under § 3500.7(a), so long as
person making the referral;                     sign the disclosure at the time that the     the title ‘‘SERVICING DISCLOSURE
   (ii) Describe the estimated charge or        disclosure is provided, the signature of     STATEMENT’’ is used. The information
range of charges (using the same                the person being referred must be            set forth in ‘‘Instructions to Preparer’’ on
terminology, as far as practical, as            obtained at or before closing or             the Servicing Disclosure Statement need
Section L of the HUD–1 or HUD–1A                settlement.                                  not be included with the information
settlement statement) generally made by            (ii) Other evidence of compliance. The    given to applicants, and material in
the provider of settlement services; and        existence of a notation having been          square brackets is optional or alternative
   (iii) Include an acknowledgement for         made, at the time that the disclosure        language. The model format may be
the person being referred to sign.              was provided, in a written, electronic,      annotated with additional information
   (2) The person making the referral           or similar system of records maintained      that clarifies or enhances the model
shall provide the disclosure in                 in the regular course of business, which     language. The lender, table funding
accordance with the following                   includes a notation of the fact that the     mortgage broker, or dealer should use
timetable:                                      person being referred chose not to sign      the language that best describes the
   (i) In the case of a face-to-face referral   the disclosure at the time that it was       particular circumstances.
or a referral made in writing or by             provided, may be used as evidence that          (2) The Servicing Disclosure
electronic media, at or before the time         the disclosure was provided at the time      Statement must indicate whether the
of the referral, except as provided in          of the referral, but does not substitute     servicing of the loan may be assigned,
paragraph (b)(2)(iii) or (b)(2)(iv) of this     for obtaining a signature in accordance      sold, or transferred to any other person
section;                                        with paragraph (b)(3)(i) of this section.    at any time while the loan is
   (ii) In the case of a referral made by       In the case of a face-to-face referral, if   outstanding. If the lender, table funding
telephone, within 3 business days after         the person being referred chooses not to     mortgage broker, or dealer in a first lien
the referral by telephone, except as            sign the disclosure at the time that the     dealer loan does not engage in the
provided in paragraph (b)(2)(iii) or            disclosure is provided, such notation is     servicing of any mortgage loans, the
(b)(2)(iv) of this section. In the case of      mandatory.                                   disclosure may consist of a statement
a referral made by telephone, an                   (4) Failure to comply with the            that such entity intends to assign, sell,
abbreviated verbal disclosure also must         disclosure requirements of this section      or transfer servicing of the loan before
be made during the telephone referral           may be overcome if the person making         the first loan payment is due.
that, in clear and understandable               a referral can prove by a preponderance         (c) Servicing Disclosure Statement;
language:                                       of the evidence that procedures              Delivery. The lender, table funding
   (A) Specifies the nature of the              reasonably adopted to result in              mortgage broker, or dealer that
relationship (explaining the ownership          compliance with these conditions have        anticipates a first lien dealer loan shall
and financial interest) between the             been maintained and that any failure to      deliver Servicing Disclosure Statements
entity making the referral and the entity       comply with these conditions was             to each applicant for a mortgage
performing settlement services (or              unintentional and the result of a bona       servicing loan at the time of application,
business incident thereto);                     fide error. An error of legal judgment       or by placing it in the mail with prepaid
   (B) Explains that because of this            with respect to a person’s obligations       first-class postage within 3 business
relationship, this referral may provide a       under RESPA is not a bona fide error.        days from receipt of the application. In
financial or other benefit to the referring     Administrative and judicial                  the event the borrower is denied credit
party;                                          interpretations of section 130(c) of the     within the 3-business day period, no
   (C) States that the existence of this        Truth in Lending Act (15 U.S.C. 1640(c))     servicing disclosure statement is
relationship does not mean that the             shall not be binding interpretations of      required to be delivered. If co-applicants
person being referred must use the              the preceding sentence or section 8(d)(3)    indicate the same address on their
provider to whom he or she is being             of RESPA (12 U.S.C. 2607(d)(3)).             application, one copy delivered to that
referred as a condition of settlement of        *       *     *     *     *                  address is sufficient. If different
the loan, or purchase, sale, or refinance          5. Section 3500.21 is amended by          addresses are shown by co-applicants
of the property, as applicable; and             revising paragraphs (b) and (c); and by      on the application, a copy must be
   (D) Advises that a written disclosure        adding a new paragraph (f)(1)(iv); to        delivered to each of the co-applicants.
will be provided within 3 business days.        read as follows:                             *      *     *     *     *
25748                  Federal Register / Vol. 62, No. 90 / Friday, May 9, 1997 / Proposed Rules

  (f) * * *                                      disclosure statement. F receives a payment          In this case, the settlement service business
  (1) * * *                                      from his employer, A, for making the referral.   that is referred is originating a mortgage loan,
  (iv) Limitation on time of action. Any         F does not perform any other category of         and the business entity for which the
                                                 settlement service in this transaction.          employee works also provides this service.
action pursuant to this section must be
                                                    Comments: Under § 3500.14(g)(1)(x),
brought within 3 years from the date of                                                           Thus, the same category of settlement service
                                                 employers may pay their own bona fide
the occurrence of the violation.                                                                  is being referred as is performed by the
                                                 employees for the referral of settlement
*     *     *     *    *                         service business to a settlement service         employer of the employee making the
                                                 provider that has an affiliate relationship      referral. (Categories of settlement services
  6. Appendix B to part 3500 is
                                                 with the employer or in which the employer       that may qualify for this exemption are listed
amended by adding a new illustration
                                                 has a direct or beneficial ownership interest    in the definition of ‘‘Settlement services’’ in
15 at the end of the appendix, to read
                                                 of more than 1 percent, if the following         § 3500.2 (b)(1) through (b)(15).) Also, the
as follows:                                      conditions are met:                              employee provides the affiliated business
Appendix B to Part 3500—Illustrations               (1) The settlement service business that is   disclosure in accordance with § 3500.15.
of Requirements of RESPA                         referred is the same category of settlement      While this particular employee takes an
                                                 service that the employer of the employee
*     *     *      *     *                                                                        application, he does not perform any other
                                                 making the referral provides;
  15. Facts: A, a bank, is affiliated with, B,      (2) The employee provides to the person       category of settlement service in this
a mortgage banking company. A customer           being referred the affiliated business           transaction.
walks into the bank, A, and asks F, A’s loan     arrangement disclosure in accordance with           Thus, in the circumstances described, the
officer, about getting a mortgage loan to        § 3500.15; and                                   employee may receive the referral fee for
purchase a house. While A makes home                (3) The employee making the referral does     making the referral without violating RESPA.
equity loans, A does not make first mortgage     not perform any other category of settlement
loans. Thus, F refers the customer to B, the     service in the same transaction.                   7. Appendix MS–1 to part 3500 is
mortgage banking affiliate, takes an                Employees who perform settlement              revised to read as follows:
application, and provides the customer with      services in other transactions may still         BILLING CODE 4210–27–P
the affiliated business arrangement              qualify for the exemption.
                         Federal Register / Vol. 62, No. 90 / Friday, May 9, 1997 / Proposed Rules   25749

  Dated: February 13, 1997.
Nicolas P. Retsinas,
Assistant Secretary for Housing—Federal
Housing Commissioner.
[FR Doc. 97–12081 Filed 5–8–97; 8:45 am]

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