The Consumer Financial Protection Bureau, relaxing a regulatory policy from 2016, will allow housing counseling agencies that offer advice and assistance to struggling homebuyers to receive fees from mortgage lenders.
The CFPB issued a No-Action Letter (NAL) that will permit approved housing-counseling agencies to enter into financial arrangements with mortgage lenders without fear that the agency will take supervisory or enforcement action against them under the Real Estate Settlement Procedures Act (RESPA).
Specifically, the policy will exempt 1,600 agencies that participate in the Department of Housing and Urban Development (HUD)’s housing counseling program from prosecution when entering into financial arrangements with lenders for pre-purchase services, such as mortgage shopping.
“Innovation drives competition, which can lower prices and offer consumers more and better products and services. New products and services can expand financial options, especially to unbanked and underbanked households, giving more consumers access to the benefits of the financial system,” said CFPB Director Kathy Kraninger.
HUD-approved housing-counseling agencies compete each year for funds from the government as well as other sources, such as non-profit grants. This new NAL responds to concerns raised by HUD that their approved housing-counseling agencies have been hesitant to seek funding agreements with lenders because of uncertainty about the application of RESPA, the CFPB said. The NAL essentially states that the bureau will not take supervisory or enforcement action under RESPA against HUD-certified housing-counseling agencies that have entered into certain fee-for-service arrangements with lenders for pre-purchase housing counseling services. According to the CFPB, the NAL is intended to facilitate housing counseling agencies entering into such agreements with lenders and will enhance the ability of housing counseling agencies to obtain funding from additional sources.
Some consumer groups, however, worry that this could lead to a conflict of interests that could negatively affect homebuyers, specifically that counselors may be more likely to steer borrowers toward mortgages or other products that are more expensive.
Will Corbett, litigation director for the Center for Responsible Lending, told Reuters that the CFPB move set a worrying precedent.
“There is not much of any explanation in the CFPB’s letter of why this is an appropriate decision,” he said. “It’s also unclear how the broader policy will foster more innovative financial products, or whether it will simply leave consumers without protection.”
The public comment period began in February, when the CFPB proposed the question as to whether it has given consumer lending firms “sufficient incentives” to broaden Americans’ access to available products and services.
RESPA forbids any kickbacks or referral fees that may unnecessarily increase the cost of buying a home for the homebuyer. This includes giving or receiving anything of value in exchange for referrals for homebuying services such as mortgage and title insurance. Although the legislation is still in place, a number of mortgage companies are flirting with co-marketing and advertising arrangements within the boundaries of the law, perhaps because of a perception that the CFPB has taken a weaker stance on RESPA enforcement.
The amended policy was announced in conjunction with two other policies intended to “promote innovation and facilitate compliance”: the Trial Disclosure Program (TDP), under which entities seeking to improve consumer disclosures may conduct in-market testing of alternative disclosures for a limited time with bureau permission, streamlining the application and review process; and the Compliance Assistance Sandbox (CAS) policy, which enables testing of a financial product or service where there is regulatory uncertainty.
“The three policies we are announcing today are common-sense policies that will foster innovation that ultimately benefits consumers,” Kraninger said.