On April 2, 2024, a putative class action was brought against United Wholesale Mortgage (UWM) alleging, among other claims, violations of Section 8(a) of the Real Estate Settlement Procedures Act (RESPA). The lawsuit contains potential wide-ranging industry implications as UWM is the largest wholesale mortgage lender in the United States.
Unlike conventional mortgage providers that analyze the borrower’s creditworthiness and then provide the mortgage, wholesale mortgage lenders, such as UWM, receive mortgage applications from third-party mortgage brokers who handle the client intake process. In the UWM case, plaintiffs allege that UWM violated Section 8(a) by orchestrating a scheme to corrupt broker independence and capture their mortgage business by misrepresenting to consumers and/or concealing the relationship between brokers and UWM and offering inducements or “things of value” to brokers in exchange for referrals of mortgage business. Plaintiffs also allege that UWM does not satisfy the Section 8(c)(2) safe harbor exception.
RESPA Section 8(a) prohibits “giving and accepting kickbacks or other things of value pursuant to any agreement or understanding to refer settlement service business…in connection with a federally related mortgage loan.” RESPA Section 8(c) establishes five exceptions to Section 8(a), including the commonly used Section 8(c)(2), which permits “certain payments and arrangements, including bona fide salary or compensation or other payment for goods or facilities actually furnished, or services actually performed.”
There is not definitive case law guidance on the plaintiffs’ theories and matter-specific facts and the CFPB has not definitively clarified how RESPA applies to wholesale mortgage brokers. However, in September 2023, the CFPB confirmed that it would continue apply the Department of Housing and Urban Development’s (HUD) RESPA Statement of Policy 1999–1, Regarding Lender Payments to Mortgage Brokers. This HUD document, originally published in March 1999, provides guidance as to whether payments to mortgage brokers are a RESPA violation. For a payment from lender to mortgage broker to be deemed compliant, the first question is “whether goods or facilities were actually furnished or services were actually performed for the compensation paid.” The fact that goods or facilities have been actually furnished or that services have been actually performed by the mortgage broker does not by itself make the payment legal. The second question is “whether the payments are reasonably related to the value of the goods or facilities that were actually furnished or services that were actually performed.” If the answer to both of those questions is “yes,” then the payment is legal. HUD further stated that there are fourteen services which the broker could provide during loan origination. If the broker provides at least five of the fourteen services, then the first prong is met. As for the second prong, the broker should get paid no more than “reasonable value” for the services.
In 2023, after a period of relative enforcement dormancy on these issues, the CFPB issued two consent orders alleging RESPA violations. These were the first RESPA Section 8 enforcement by the CFPB since 2017.
Given the CFPB’s recent enforcement activity and guidance on whether incentives provided to real estate brokers may violate RESPA Section 8, the mortgage lending industry should pay heightened attention to the outcome of the UWM case.
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