The CFPB’s Latest No-Action Letter and How it Affects Mortgage Lenders

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Last week, the CFPB issued a No-Action Letter specifically related to Mortgage Lenders working with HUD-Certified Housing Counselors. At first glance, this may not hit your radar screen, but this is Really Big News!!

In a press release issued on September 10, 2019, the CFPB announced that they would not seek action against lenders who were compensating HUD Certified Housing Counselors for counseling services performed. Of course, there are some best practices you must put in place which you can read in the documentation attached to the press release. I have attached that below for your convenience. I want to thank the CFPB for releasing clarity on this issue as it relates to RESPA. Now the industry can breathe a sigh of relief, and here is why!

The History:

FHA used to have oversight for RESPA. During that time, it was made clear by HUD that if a lender referred a client to a HUD Certified Housing Counselor to assist them with financial or homeownership counseling, then the Lender could compensate the HUD Certified agency for the services they performed. This business practice was long-standing and worked well for both lenders who did not have the time or bandwidth to assist clients with counseling and the counselors who were there to help consumers become responsible homeowners.

With Dodd-Frank, the CFPB took over RESPA, and the debate began. Was this type of arrangement RESPA compliant? Well, a few attorneys got together at the CFPB and decided that this may be a problematic arrangement under RESPA despite the long-standing practice. And then BAM, a wrench was thrown into the program. Now lending company counsels were warning against the practice due to the CFPB statement, and lenders were shutting down the arrangements left and right. So, like many things in DC, opinions put consumers at risk of never knowing that financial and homeownership counseling was available to them. Then, the counselors who work in the underserved communities of our nation were left with the unenviable task of helping people with very limited dollars. It bears repeating that non-profits are not charities. They need to generate income to pay their rent, employee costs, electric, and other costs, just like any business. Working for free or for minimal grant money meant that many needed to lay off critical people in communities that needed their services the most.

The Revision

Then enter the new No-Action Letter. HOORAY!! The no-action letter cleared the confusion regarding arrangements made between lenders and HUD-Certified counseling agencies who were assisting consumers dreaming of homeownership. Now, a lender may enter into this arrangement through a Memorandum of Understanding between the Lender and the HUD-Certified Counseling agency, and as long as they follow best practices as outlined by HUD, they will not need to worry about RESPA violations.

This change of opinion and subsequent written documentation will now result in positive outcomes for both the mortgage lenders, HUD Certified Housing Counseling Agencies, and the consumer. 

The Basics are pretty simple:

1. The lender must request the no-action from the CFPB, who indicated they are turning those letters around in a few days.
2. The lender and the counseling agency must have in place a Memorandum of Understanding that follows the procedures and best practices as outlined by HUD in the HUD Counseling Manual.
3. The Counseling Agency must be a HUD Certified Counseling Agency.
4. The fees for service should be outlined and standardized. HUD offers guidance for this as well.

And for those of you in Fair Lending, this gives you the green light to proceed with innovative ways to diversify your lending patterns into underserved communities. More on that subject in future articles. In the meantime, if you would like to understand how this may benefit your bottom line and the consumers you serve, then feel free to contact me at [email protected]

To Read the Press Release and Supporting Documentation Click Here!