VIDEO: Provisions of RESPA Section 8
In this Compliance Clip (video), Adam gives a quick overview of the four provisions of Section 8 of the Real Estate Settlement Procedures Act (RESPA). To better explain how the provisions are incorporated in the regulations, Adam gives a quick visual of the actual law and Regulation X, where the RESPA Section 8 provisions are embedded.
Video Transcript
The following is a transcript of this video.
This Compliance Clip is going to talk about the provisions of RESPA Section 8. In essence, we're going to give you a quick overview of RESPA Section 8 and the prohibitions against unearned fees and kickbacks. The question is: What are the provisions of RESPA Section 8? The answer here comes from a number of places. It comes from Reg X, which is part 1024.14, but it really comes from Section 8 of RESPA, which is US Code 2607. And we can also see an answer in the CFPB‘s frequently asked questions, RESPA Frequently Asked Question number one under the RESPA Section 8 general questions section. So our answers come from a number of places. Let's take a look at this.
As far as Real Estate Settlement Procedures Act, Section 8 prohibits certain actions related to federally related mortgage loans. In particular, it has four main provisions. Now, this is the law itself. Section 8 of the Real Estate Settlement Procedures Act.
Section 8(a), first and foremost, prohibits kickbacks for business referrals related to or part of settlement services involving federally related mortgage loans. Section 8(b) prohibits unearned fee arrangements, such as splitting charges made or received for some of the services, except for services that are actually performed, in connection with federally related mortgage loan transactions. These first parts of Section 8, part (a) and part (b), they're really the meat of what we refer to as Section 8, which comes out of Reg X as well. So this is your prohibition against kickbacks and unearned fees. That's where it's coming from. Of course, kickbacks and unearned fees are prohibited against transactions in connection with federally related mortgage loan transactions. These rules are not subject to you if we're talking about a commercial loan transaction, because those are most likely not federally related mortgage loan transactions. So these are going to be your mortgages. That's what we're talking about here.
There are two more provisions of RESPA Section 8. Section 8(c) identifies certain payments that are not prohibited by Section 8. It talks about some things that are allowed and then Section 8(d) describes specific penalties for violation. So it talks about the problems that could come about. Those are the provisions of RESPA Section 8.
I know it's a bit confusing so what I wanted to do is give you a visual. I don't do this very often, but I'm going to show you a couple things on some websites. First of all, we take a look here at the US Code, it's uscode.house.gov. I've just done a Google search for RESPA Section 8 US code, and I was able to quickly find this. But you can see, this is the way the code is broken down under is 2607 and we have part (a) talks about the business referrals, which is your kickbacks. And then you have your unearned fees and splitting charges under section (b) here, and then under (c) it talks about things that are permitted, and then (d) talks about the violations. That's where the actual law lies.
But then if we want to jump over to the CFPB’s website, we can see that, of course, as bankers, we follow regulations. So this law has been implemented and instilled inside a regulation, which is Regulation X, the Real Estate Settlement Procedures Act Regulation X RESPA. This rule is bigger than just Section 8. Section 8 is actually found in 1024.14. So Reg X is 1024, that's the CFPB’s numbering system, point 14 is the section on kickbacks and unearned fees. And you can see, this is how 1024.14 is broken down.
They talk about the general prohibition of kickbacks and unearned fees, talk about split charges except for services actually performed, talk about what a thing of value is, talk about what an agreement or understanding and referral are, and talk about some things that are permitted, some things like fees and salaries, compensations, and other payments that are permitted and not prohibited under Section 8. And then talks about a couple of other things like multiple services, record-keeping, and reference to appendix B. Appendix B of course gives us illustrations to demonstrate some of the requirements of the section. So it gives us a little bit more information if we wanted to take a deep dive into RESPA Section 8.
That's an overview of RESPA Section 8 and the prohibitions in what is allowed and what is not allowed. Just a quick overview for you. That's all I have for this Compliance Clip.