HUD looks at Warranty Company Compensation to Agents and Originators

Mortgage and Lending with Mortgage Loan Officer, Fairway Independent Mortgage Corporation NMLS #2289 Loan Officer, NMLS 184479

HUD has issued a ruling regarding fees paid by Home Warranty companies to real estate agents and mortgage originators. There is nothing new to the intepretation of RESPA, "A referral is not a compensable service for which a broker or agent may receive compensation."

The HUD notice indicated that the ruling was exempt from a requirement for public comment, but they have opened comment on this interpretation through July 26.

Consistent with established interpretation of RESPA rules, any fees paid to a referring agent must be "actual, necessary and distinct from the primary services provided by the real estate broker or agent."

The rule specifically addresses what marketing efforts constitute services that entitle an agent to be compensated by the Warranty Company.

The rule states that "marketing performed by a real estate broker or agent on behalf of an HWC to sell a homeowner warranty to particular homebuyers or sellers is a ‘‘referral'' to a settlement service provider."

The distinction seems to be that a fee paid for referring a specific client to a warranty company is kickback. Marketing that is not directed toward a specific client might qualify for compensation. The ruling gives specific guidance on what is required to qualify for compensation.

This interpretation is effective as June 25, 2010.

Given that this interpretation of RESPA is in no way unusual and that the ruling is specific in addressing fees paid by warranty companies, the practice must have come under close scrutiny by HUD.

Richard Smith
NMLS 184479

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Richard Byron Smith
Mortgage Loan Officer
NMLS# 184479 TN# 104002 Georgia Residential Mortgage Licensee, GA#28928
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Fairway Independent Morgage Corporation
NMLS #2289
Chattanooga, TN

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This blog represents the opinions of Richard Smith. The posts and comments written on the blog do not represent the opinions or positions of Fairway Independent Mortgage Corporation.

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