Service Release Premium versus Yield Spread Premium: Match or Mismatch?

by Jonathan Foxx

Jonathan Foxx, former Chief Compliance Officer of two publicly traded financial institutions, is the President and Managing Director of Lenders Compliance Group.

Published in the August Edition of National Mortgage Professional Magazine.

What’s in a Name?

Juliet says, in Shakespeare’s “Romeo and Juliet:”

“What’s in a name? That which we call a rose
By any other name would smell as sweet.”[1]

Is a name just a contrived and meaningless convention?

Is the undisclosed income paid to a bank when it sells an above par residential mortgage loan into the secondary market elementally distinguishable from the disclosed income paid to a mortgage broker when it sells an above par loan to a bank? The former, known as the Service Release Premium (SRP), and the latter, known as the Yield Spread Premium (YSP), seem to share similar functionality, but may soon have quite different fates. The YSP will virtually cease to exist if the Mortgage Reform and Anti-Predatory Lending Act, passed by the House of Representatives on May 7, 2009, and sent to the Senate, is eventually signed by President Obama into law. [2]

But the SRP will live on and on, with no regulatory change affecting its use. Call each one what you will “by any other name,” though characteristically the same, the destinies of the SRP and the YSP diverge right at the point where an entire class of loan originators, the mortgage brokers, will be effectively trounced by another class of loan originators, the banks! Rarely has the power of the banking lobby been more apparent in its quest to eliminate competition.

Match or mismatch?

Bicameral Rivalry

In addition to the House’s foray into attacking the YSP, while still surely preserving the SRP, there is yet another shark in these controversial waters!

Seemingly not to be outdone by the machinations of Barney Frank’s (D-MA) House Financial Services Committee, which was the architect of the afore-mentioned legislation,[3] two new Senate bills were introduced by Oregon Senator Jeff Merkley (D-OR). Each of these two new Senate bills, if made into law, would adversely affect the mortgage brokerage community. The first is slyly called the Promoting Mortgage Responsibility Act,[4] which prohibits prepayment penalties,[5] and the second is ironically called Transparency for Homeowners Act of 2009,[6] which specifically prohibits Yield Spread Premiums, but does not prohibit or give transparency whatsoever to the Service Release Premium. The word “transparency” has been bandied about quite a bit recently by certain politicians, but Senator Merkley’s understanding of transparency clearly does not extend to requiring the disclosure of the Service Release Premium.[7] As Alice cried, this is becoming “Curiouser and curiouser!”[8]

The YSP has been villanized and compared to a “kickback.” As recently as April of this year, a New York Times editorial ominously declared that the “first step must be to outlaw the kickbacks” and “the most clearly unethical form of payment is the so-called yield-spread premium.”[9] The SRP was not mentioned even once in this editorial. The typical opinion of the political and media castes is that the YSP is anathema. In previous articles, we argued that the YSP is not a kickback under existing law[10] and can be saved so that it will continue to provide important benefits to the consumer.[11] Why destroy the YSP and keep the SRP, when there is not a single factor representative of YSP abuse that cannot also be representative of SRP abuse? Let’s look just a bit closer at these parallels.

“You say either and I say eyether, You say neither and I say nyther;
Either, eyether, neether, nyther, Let's call the whole thing off!”[12]

“Either, eyether, neether, nyther,” however the mortgage brokers and banks may choose to agree or disagree about the roles played by two succinctly similar premiums, it is readily apparent that one of them is surely not accessible to the consumer’s purview. Maybe it’s time to consider making both the YSP and the SRP available to the public, create full transparency, and give control to the borrower with respect to their application.

The YSP has been criticized because it can lead to price discrimination, thus not necessarily offering the borrower a savings and, therefore, can be used to increase the cost. Certainly, it has been statistically demonstrated that total loan costs are elevated in loans containing YSPs, discount points, and seller contributions to closing costs.[13] The U. S. Department of Housing and Urban Development (HUD) has given extensive guidance in determining the proper application of the YSP.[14] Furthermore, those who want the YSP permanently eliminated from residential mortgage loan originations argue that the YSP (1) can be used to charge borrowers more, (2) do not always provide a dollar for dollar financing offset, and (3) may represent compensation in excess of goods and services. But each one of the above-mentioned abuses can certainly occur in using the SRP. One exception does pertain to the YSP: the borrower is given information about the YSP on the Good Faith Estimate (GFE) and the HUD-1 Settlement Statement,[15] but otherwise denied any and all information about the SRP on any loan application document or disclosure![16]

Note, however, that charging a higher YSP without providing a financing offset is prima facie violative of the Real Estate Settlement Procedures Act (RESPA);[17] and, in any event, not providing a dollar for dollar financing offset[18] and excessively charging for goods and services are violations of HUD’s long-standing policies as well as its well-known “Two-Part Test.”[19]

Although HUD has given clear guidance on the proper application of the YSP, it has provided virtually no similar guidance to banks regarding the SRP. There’s a reason for this: RESPA does not actually govern a bank’s use of the SRP. To be sure, being exempt from RESPA, this is not a statute that a bank must comply with; though, of course, every mortgage broker must adhere to RESPA’s requirements. HUD, therefore, even in its administrative oversight of RESPA, takes no position on the SRP’s use by banks!

So, let’s compare the fully disclosed YSP with the fully undisclosed SRP.

Comparative Analysis

Potential for Abuse	YSP	SRP
Price Discrimination	Measurable	Not Measureable
Excessive Charges	Measurable	Not Measureable
No Dollar for Dollar Financing	Measurable	Not Measureable
Overpaying for goods, services, facilities	Measurable	Not Measureable

There is a potential for either the YSP or the SRP to be applied in an abusive manner. I have suggested elsewhere that the abuse of the YSP can be largely curtailed by crediting it to the borrower, thereby permitting the borrower to choose how it is to be used in accordance with the borrower’s own interests.[20] Once borrowers agree to how the YSP will be used and on what terms, market forces will take over. But, the borrower has no idea what the value of the SRP is, because it is an entirely undisclosed premium and, therefore, a consumer cannot hope to control how or if it is to be applied. Indeed, a bank provides no information for the consumer to determine whether the SRP complies with fair lending laws, avoids excessive charges, offers dollar for dollar financing opportunities, or avoids overpayment for goods, services, and facilities. Those important aspects of consumer protection are relegated to the transparent domain of the YSP.[21] The SRP’s lack of transparency masks from public scrutiny each one of these criteria.

"If you don't know where you are going, you will wind up somewhere else."

– Yogi Berra

The borrower is ultimately paying both the YSP and the SRP, so why not disclose each of them and let the consumer determine how they are to be used? Without properly regulating the SRP, a bank can use it to increase its profit, though providing no incremental benefit to the borrower. The above-mentioned House legislation and the two new Senate bills are clearly based on the premise that the YSP disadvantages borrowers, whereas the SRP does not. Or, at least, that is the most generous conclusion to be reached. Given the strength of the banking lobby, other conclusions can be easily conceived.

Doing away with the fully disclosed YSP, but keeping intact the undisclosed SRP obviously gives an advantage to banks and, presuming the passage of the aforesaid legislation, the continuation of the SRP as a de facto mark-up tool further emboldens and strengthens banks – but certainly weakens mortgage brokers. And such an outcome will also weaken the public’s ability to use the benefits which the YSP offers, such as providing a dollar for dollar financing offset by legitimately reducing the up-front cash requirements to borrowers.[22]

The borrower has heretofore benefited from the YSP, when properly applied. Eliminating it, but retaining the SRP, does not end the potential for abuse, but actually magnifies it by exposing consumers to potentially adverse effects, due to the SRP being undisclosed. It is generally axiomatic that lack of disclosure often leads to abusive practices. By fully disclosing both the YSP and the SRP to borrowers, greater control over pricing and services will be vetted by market forces and create a truly competitive environment. Borrowers should receive a credit for each premium and allocate it according to their own interests. This will bring about a reliable standard and eliminate unfair competition between banks and mortgage brokers. The public would benefit with full disclosure of both the Yield Spread Premium and the Service Release Premium, and the mortgage industry’s regulators, in their role as consumer advocates, will be better able to adopt and enforce new means to effectuate appropriate oversight.

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[1] Romeo and Juliet (II, ii, 1-2), William Shakespeare

[2] H. R. 1728: “ Mortgage Reform and Anti-Predatory Lending Act”

[3] There’s probably no connection between Congressman Frank’s position on this legislation and the fact that one of the largest sectors donating to his campaign committee is the banking industry. See: OpenSecrets.org’s composite, compiled from the 2009-2010 election cycle and based on Federal Election Commission data available electronically on July 03, 2009.

[4] Senate 911, April 28, 2009, 111^th Congress

[5] Very few residential loan products these days contain prepayment penalties, having almost entirely ceased to exist due to their abuse in subprime loan originations. Legislating to abolish a practice that is already abandoned seems somewhat frivolous and unavailing.

[6] Senate 912, April 28, 2009, 111^th Congress

[7] There’s probably no connection between Senator Merkley’s legislation and the fact that the largest sectors donating to his campaign PAC have been Finance, Insurance, and Real Estate. See: OpenSecrets.org’s composite, based on Federal Election Commission data available electronically on Monday, June 29, 2009.

[8] Carroll, Lewis, Alice's Adventures in Wonderland and Through the Looking-Glass, Chapter 2, Grosset & Dunlap, 1946

[9] Editorial Opinion, The New York Times, 4/10/09, p. A22, New York Edition

[10] “Yield Spread Premiums: Compensation or Kickback?”, Jonathan Foxx, National Mortgage Professional Magazine, June 2009, Volume 1, Issue 2, pp 18-20

[11] “Saving the Yield Spread Premium”, Jonathan Foxx, National Mortgage Professional Magazine, July 2009, Volume 1, Issue 3

[12] From “Let’s call the Whole Thing Off”, 1937, a song by George and Ira Gershwin, written for the film “Shall We Dance”

[13] Research Works, Volume 5, Number 8, September 2008, p. 1

[14] See 24 CFR Part 3500 (RESPA): Statement of Policy 1999-1, U.S. Department of HUD, 2/22/99, and Statement of Policy 2001- 1, U.S. Department of HUD, 10/18/2001

[15] Indeed, the new Good Faith Estimate and HUD-1Settlement Statement, required to be implemented beginning January 1, 2010, contain no information about the SRP.

[16] The new GFE contains the following statement on the bottom of page 3: “Some lenders may sell your loans after settlement. Any fees lenders receive in the future cannot change the loan you receive or the charges you paid at settlement.” The Mortgage Bankers Association has asserted that this may be a “rationale” for not disclosing the SRP. See: Preliminary Information on HUD’s Forthcoming RESPA Rule, 11/12/08, “Good Faith Estimate”

[17] 24 CFR 3500, Real Estate Settlement Procedures Act

[18] “Yield spread premiums permit homebuyers to pay some or all of the up front settlement costs over the life of the mortgage through a higher interest rate. Because the mortgage carries a higher interest rate, the lender is able to sell it to an investor at a higher price. In turn, the lender pays the broker an amount reflective of this price difference. The payment allows the broker to recoup the up front costs incurred on the borrower’s behalf in originating the loan. Payments from lenders to brokers based on the rates of borrowers’ loans are characterized as “indirect” fees and are referred to as yield spread premiums.” See: 24 CFR Part 3500 (RESPA), Statement of Policy 2001-1, Part A, U.S. Department of HUD, 10/18/01

[19] HUD offered a “Two-Part Test,” in its Statement of Policy 1999-1, to determine if a loan origination is RESPA compliant: (1) whether services were actually furnished and actually performed for the compensation paid, and (2) whether the compensation payments are reasonably related to the value of the services actually furnished and performed. See: 24 CFR Part 3500 (RESPA), Statement of Policy 1999-1, U.S. Department of HUD, 2/22/99

[20] Foxx, op.cit., Note 11.

[21] In fact, all fees and payments received by a mortgage broker from a lender and a borrower – including YSPs and even SRPs – must be recorded on the GFE and listed in the 800 series on the HUD-1 Settlement Statement. See: 24 CFR Part 3500 (RESPA), Appendix B to Part 3500 (13) Commentary. Mortgage Bankers are not required to disclose the SRP.

[22] 24 CFR Part 3500 (RESPA) Statement of Policy 2001-1, Section I.A

Saving the Yield Spread Premium

By Jonathan Foxx
President and Managing Director

Published in the July Edition of National Mortgage Professional Magazine.

The ancient Roman god, Janus, was two-faced – his back-to-back visages looking at the past and into the future – a symbolic representation of ineluctable transitions through the passage of time, a reminder of essential change from one condition to another, whether for better or worse. Like it or not, the Yield Spread Premium (YSP) will be going through its own transition soon, and, depending on the politics – and not necessarily the facts – the essential change will be enduring and irreversible.

If the YSP is believed to be a legitimate financing tool, and proves to be a useful means in the service of borrowers, it may yet survive; if not, its demise is on the way. At this time, it is in danger of becoming extinct! The House recently passed the Mortgage Reform and Anti-Predatory Lending Act,[1] which will amend the Truth in Lending Act, and it has gone to the Senate.[2] Its provisions directly affect the fate of the YSP. If it passes on to the White House in its current form and President Obama signs it, this legislation will become law.

A key provision is the virtual removal of Yield Spread Premiums![3]

Prior to the enactment of the Real Estate Settlement Procedures Act (RESPA) in 1974, the US Department of Housing and Urban Development (HUD) and the Veterans Administration issued a report asserting, amongst other things, that “settlement charges often are based on factors unrelated to the cost of providing the services,” and advocated regulating settlement costs. This position was an underlying feature of the debate, beginning in 1972, which led up to the formation of RESPA.[4] Congress decided that RESPA should not implement price controls, such as setting maximum allowable costs, believing instead that proper disclosure and prohibiting certain practices were sufficient to avoid abuse. HUD has maintained that RESPA is not intended to be a rate-making statute. And it has indicated in various policy issuances that the YSP is not per se legal or illegal. Yet in the near future the YSP – a component of total compensation, and a means whereby a borrower, if properly empowered, could actually determine its use – will be heading to the dustbin of history.

This controversy can be considered by briefly exploring certain evaluative criteria.

Broadly, the following areas constitute the core of the debate:

• Can the YSP cause price discrimination?
• Can borrowers be charged more because of the YSP?
• Can the YSP provide a dollar for dollar financing offset?
• Does the YSP cover the cost of goods and services?

Let us briefly consider each of these questions. Afterward, a suggestion will be offered that, if implemented, would strongly empower the borrower, fortify the lender and broker relationship, preserve continuity and potency of market forces, and save the YSP.

Price Discrimination

Can the YSP cause price discrimination?

There is some evidence that less sophisticated borrowers and borrowers with certain racial profiles have paid higher loan costs. According to HUD’s Office of Policy Development and Research, “price discrimination has been known to occur,” whereby “loan fees are highly correlated to race and education characteristics, with African-American and Latino borrowers paying an average of $415 and $365 more, respectively, than other borrowers.”[5]

HUD’s recent, final version of Regulation X revisions,[6] designed to create a more level playing field, were in part a response to a regulatory impact analysis – required by the Regulatory Flexibility Act – that stated “there is strong evidence of information asymmetry between mortgage originators and settlement service providers and consumers, allowing loan originators to capture much of the consumer surplus in this market through price discrimination.”[7] Total loan costs are elevated in loans containing YSPs, discount points, and seller contributions to closing costs. The YSP may not necessarily offer the borrower a savings, though it can be used to increase the cost. “Research shows that borrowers saved only $20 in upfront cash for each $100 paid in YSP. Mortgage-brokered loans benefited the least, saving only $7 per $100 in YSP.”[8] Higher fees, lower savings, meaning increased costs to borrowers, can lead directly to price discrimination.

Higher Costs

Can borrowers be charged more because of the YSP?

Mortgage brokers can obviously increase their compensation by selecting for the lender that offers a higher YSP for a loan, though another lender may offer a loan with similar features, but at a lower YSP. It does not matter that the compensation is paid indirectly (i.e., YSP paid by lender), the consumer is ultimately paying for it. If such increased compensation is not used as a financing offset, the mortgage broker could be incentivized to choose the higher YSP, without having to provide any additional financing, products, or services to the borrower. This is a prima facie violation of RESPA,[9] because a borrower’s up-front cash requirements are not lowered, yet the mortgage broker’s compensation is increased in excess of what is reasonably related to the total value of the origination services provided by the broker.[10]

Offset Financing

Can the YSP provide a dollar for dollar financing offset?

HUD has consistently taken the position that the YSP can play a significant role in offsetting financing costs.[11] In its Statement of Policy 2001-1, HUD stated that “a yield spread premium can be a useful means to pay some or all of a borrower’s settlement costs. In these cases, lender payments reduce the up-front cash requirements to borrowers. In some cases, borrowers are able to obtain loans without paying any up-front cash for the services required in connection with the origination of the loan. Instead, the fees for these services are financed through a higher interest rate on the loan. The yield spread premium thus can be a legitimate tool to assist the borrower”[12] (Emphasis added.) Indeed, HUD believes this use of the YSP “fosters homeownership.”[13] Analogous to the case of the YSP having the potential to cause a higher cost loan, if the YSP is only used to increase the borrower’s interest rate as well as the broker’s overall compensation, but does nothing to lower up-front cash requirements for the borrower, this use of the YSP would not be a bona fide source of financing and certainly violates RESPA.[14]

Goods and Services

Does the YSP cover the cost of goods and services?

This is an area that has been litigated extensively and, even to this day, the outcome is uncertain.

The legal landscape has stretched far and wide, in various jurisdictions, from initially maintaining that the YSP is a referral prohibited by RESPA’s Section 8,[15] to the YSP being a form of compensation and not a violation of RESPA;[16] from the YSP being a permissible payment for goods (i.e., loans with YSPs),[17] to a reversal of that position, holding that the YSP was potentially a prohibited referral fee under Sections 8(a) and 8(c) of RESPA.[18] In that latter ruling, a case decided by the Court of Appeals for the Eleventh Circuit, in Culpepper v. Inland Mortgage Corp (“Culpepper”), the Court offered a two-pronged test to determine if the YSP was compliant with RESPA: (1) Are goods or services provided in exchange for the yield spread premium?, and, (2) Was the YSP a payment in exchange for those goods or services. First, the Court decided that the YSP was not a payment for the good itself (i.e., the “good” being the loans with YSPs, table-funded), because the lender, not the broker, actually owned the loan already. Second, the Court decided that the YSP was not a payment for the good itself, asserting that direct payments to the broker is the allowable compensation, and, in any event, given that the YSP is calculated on the basis of the loan’s interest rate, where there is no ostensible difference between a loan with a YSP and a loan without a YSP, the YSP had to be a prohibited referral fee.

HUD then weighed in, offering its Statement of Policy 1999-1, and in so doing offered its own Two-Part Test. Essentially, HUD’s position was (and still is) that a mortgage broker’s total compensation is RESPA-compliant (1) if “goods or facilities were actually performed for the compensation paid,” and (2) if the “payments are reasonably related to the value of the goods or facilities that were actually furnished or services that were actually performed.”[19] HUD provided a list of compensable services which, although it is not (and was not meant to be) exhaustive, clearly identifies numerous services that mortgage brokers render in return for direct and/or indirect compensation from the borrower. Importantly, HUD identified certain goods provided by a mortgage broker, but it made clear that the loan (i.e., a loan with YSP, table-funded) was not itself a “good.” Explicitly, HUD stated that, “while a broker may be compensated for goods or facilities actually furnished or services actually performed, the loan itself, which is arranged by the mortgage broker, cannot be regarded as a ‘good’ that the broker may sell to the lender and that the lender may pay for based upon the loan's yield's relation to market value, reasonable or otherwise.”[20] Even though HUD had answered key questions, many Courts still vacillate in their interpretations.

Indeed, litigation continued, bringing about an additional response from HUD. Its 2001-1 Statement of Policy [21] was issued, in part, to clarify HUD’s position on YSPs, due to a decision of the Court of Appeals for the Eleventh Circuit, in Culpepper v. Irwin Mortgage Corp which upheld certification of a class in a case alleging that yield spread premiums violated Section 8 of RESPA.[22] The Court had found that the lender, pursuant to a prior understanding with mortgage brokers, had paid yield spread premiums to the brokers based solely on the brokers’ delivery of above par interest rate loans. Furthermore, the court described HUD’s 1999-1 Statement of Policy as “ambiguous.” At the time, other courts were rendering conflicting decisions. HUD’s response asserted the legality of yield spread premiums, when services are actually rendered for compensation reasonably related to the value of the services and it makes clear the operational effectiveness and purpose of YSPs in increasing home ownership as well as identifying those areas where the YSP may be abused.

But how to determine that the compensation payments are reasonably related to the value of the services actually furnished and performed?

Suggestion

Implicit in each of the criteria given above is the view that the YSP can be abused, though it may serve a legitimate purpose. Many commercial transactions are subject to abuse, if left unregulated. To eliminate the YSP, when it is a useful means and legitimate tool to originating residential mortgage loans, would not only deprive the borrower of its application but also cause a pervasively destructive impact on the mortgage brokerage industry. This is clearly a case that cries out for better regulation.

HUD had recommended regulatory measures in 1997, when it published a proposed rule to give a qualified "safe harbor" for payments to mortgage brokers under RESPA’s Section 8.[23] HUD proposed that there would be no violation of RESPA – and a presumption would be made that broker fees, both direct and indirect, were legal – if a mortgage broker should enter “into a contract with consumers explaining the broker's functions (whether or not it represented the consumer) and the total compensation the broker would receive in the transaction, before the consumer applied for a loan.”[24]

Recent RESPA reform has been an attempt to remediate through increased disclosure. The new Good Faith Estimate (GFE), consisting of three pages, provides a rather thorough outline of the settlement charges. The GFE requires the YSP to be disclosed more comprehensively, requiring a “credit” field to be used to disclose a yield spread premium and a “charge” field to be used for discount points.[25]

However does this go far enough in determining the extent to which the YSP is applied to the loan and, importantly, establish the “reasonableness” of this particular compensation for goods or services actually rendered? After all, HUD’s remedy would simply be to require an enhanced disclosure of the YSP to the borrower. Indeed, the Mortgage Reform and Anti-Predatory Lending Act, mentioned above, will surely add a whole new set of mandatory disclosures to the already huge number of disclosures required by existing law. But the resolution will not be found in more and more disclosures or by allowing the government to interpose itself between the consumer and private enterprise through more disclosure forms and promulgating arbitrary standards.

An important piece is still missing, one that gives the consumer (and, therefore, market forces) the ability to set a fair market standard for compensation payments that are “reasonably related to the value of the services actually furnished and performed.”[26] In the long run, if appropriately implemented, it would also remedy many of the issues involving price discrimination, higher costs, and offset financing, because it would give the borrower control over the use of the YSP.

The missing piece is simply to credit the YSP directly to the borrower. The borrower would then have the choice to use the YSP in accordance with the borrower’s own interests. Once the borrower specifically authorizes how the YSP is to be used, a standard of “reasonableness” would be established. Market forces will respond accordingly, as borrowers agree to the utilization of the YSP. Placing the control of the YSP into the hands of the borrower and letting its use be determined by the borrower will protect the borrower and provide a true “safe harbor.”

Like the Roman god, Janus, we now occupy the middle ground between the past and the future, between how the YSP has been used in the past and how (or even if) it will be used in the future. As events unfold, however, saving the YSP by empowering the borrower to authorize its use may not go far enough! For the Service Release Premium (SRP), the undisclosed income paid to a lender when it sells an above par loan into the secondary market, is in some ways an analogue to the YSP. RESPA does not require a lender to disclose the SRP to the borrower, though it does require a mortgage broker to disclose the YSP. Should the YSP be revised or eliminated without concomitantly changing the application of the SRP? Legislation aimed at changing the YSP, but not the SRP, seems to favor the lender over the mortgage broker. Both the lender and broker serve the consumer! Borrowers will benefit from the proper use of the YSP and the SRP. In future articles, we will explore the role played by the SRP in originating residential mortgage loans, and, importantly, how revising the application of the SRP will benefit consumers, maintain a stable market, and preserve the vitality of all loan originators.

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[1] H.R. 1728

[2] Passed by the House on May 7, 2009; received in the Senate on May 12, 2009

[3] Amending TILA Sec 129B, inter alia, by inserting a new subsection after subsection (b): Sec 103(4)(A) “No provision of this subsection shall be construed as permitting yield spread premiums or other similar incentive compensation.”

[4] Hearing before the Subcommittee on Housing of the House Committee on Banking and Currency (1972), Real Estate Settlement Costs: FHA Mortgage Foreclosures, Housing Abandonment, and Site Selection Policies

[5] Research Works, Volume 5, Number 8, September 2008, pp 1-2

[6] Released: November 12, 2008

[7] FR-5180, Filed: 5/8/09

[8] Research Works, Op. cit., p.1

[9] 24 CFR 3500, Real Estate Settlement Procedures Act

[10] HUD offered a “Two-Part Test,” in its Statement of Policy 1999-1, to determine if a loan origination is RESPA compliant: (1) whether services were actually furnished and actually performed for the compensation paid, and (2) whether the compensation payments are reasonably related to the value of the services actually furnished and performed. See: 24 CFR Part 3500 (RESPA), Statement of Policy 1999-1, US Department of HUD, 2/22/99

[11] 54 FR 38646 (September 20, 1989), final rule in Deregulation of Mortgagor Income Requirements; HUD’s recognition in 1992 that the YSP must be disclosed, codified in “Fact Situations” 5 and 13 in Appendix B to 24 CFR Part 3500; see also, Op. cit. Statement of Policy 1999-1

[12]24 CFR Part 3500 (RESPA) Statement of Policy 2001-1, Section I.A

[13] Ibid.

[14] 24 CFR 3500.14 (g)(1)(iv), permits “a payment to any person of a bona fide salary or compensation or other payment for goods or facilities actually furnished or for services actually performed.”

[15] Mentecki v. Saxon Mortgage, Inc., 1997 WL 45088 (E.D. Va. 1997).

[16] Barbosa v. Target Mortgage Corp., 968 F.Supp. 1548 (S.D. Fla. 1997).

[17] Culpepper v. Inland Mortgage Corp., 953 F.Supp. 367 (N.D. Ala. 1997)

[18] Culpepper v. Inland Mortgage Corp., 132 F.3d 692 (11^th Cir. 1998)

[19] HUD Policy Statement, 64 FR 10080, 10084, Op. cit., Note 10

[20] Op. cit., Note 10, Statement of Policy 1999-1, Section II.C

[21] Op. cit., Note 12, Statement of Policy 2001-1

[22] Culpepper v. Irwin Mortgage Corp., 253 F.3d 1324 (11^th Cir. 2001)

[23] Codified at 62 FR 53912

[24] Op. cit., Note 10, Statement of Policy 1999-1, Section F. This qualified “safe harbor” would only be available to those payments that did not exceed a test to preclude “unreasonable fees.” The test was to be established in the rulemaking.

[25] 24 CFR Parts 203 and 3500, FR: Vol. 73, No. 222, pp. 68204-68288 (11/17/08)

[26] Op.cit., Note 10, Statement of Policy 1999-1, “Two-Part Test”

Jonathan Foxx is a former Chief Compliance Officer of two publicly traded financial institutions and the President and Managing Director of Lenders Compliance Group.