We've been yammering about violations of RESPA's anti-kickback and anti-referral prohibitions since this blog first inflicted itself upon an unsuspecting public. Instead of barking at numbskulls in the private sector, I guess we should have been laughing at HUD, which is the agency charged with enforcing those prohibitions. Somehow, I overlooked this story when it first ran last week (h/t Housing Wire).
Some Michigan mortgage experts want the U.S. Department of Housing and Urban Development (HUD) to admit it erred when it launched an incentive program for real estate brokers that possibly violated its own consumer protection act.
Last week, HUD stopped the 3-month-old program, which offered $500 bonuses to real estate brokers who got HUD home buyers into Federal Housing Administration (FHA) home loans, after Bloomfield Hills attorney Howard Lax contacted HUD and claimed the program was an illegal kickback.
Lax said the program violated the Real Estate Settlement Procedures Act -- a claim HUD officials denied last week. The act, also called RESPA, is a consumer protection statute that is enforced by HUD.
Pava Leyrer, legislative chair for the Lansing-based Michigan Mortgage Brokers Association, also said she believes the program was illegal.
Howard Lax is a heavyweight in the world of mortgage banking law, and if someone put a gun to my head and forced me to choose between Howard and HUD, Howard would win, hands down. By the way, Howard's firm publishes an excellent newsletter on mortgage banking law. You can find it here.
Being a government agency, HUD couldn't merely say "Oops! My Bad!" and move on. No, it had had to get snippy about it.
"What would have been nice is if they would have gone out and made a public apology," Leyrer said.
HUD awarded the $500 bonus to about 200 brokers since November, including 67 in Michigan, said HUD spokesman Brian Sullivan.
Under RESPA, anyone who awards kickbacks for referrals can face fines up to $10,000 and a possible 1-year prison sentence, said Sullivan. Often out-of-court settlement agreements are made, he said.
Sullivan said the initiative was dissolved because it was perceived to be inappropriate, not because it broke the law.
"There is absolutely no admission on our part that there was a violation," he said.
It's always nice when a government agency gets "lawyered up" and starts talking like a mouthpiece for the late Ken Lay, isn't it? I'm sure HUD's been getting plenty of practice since Alphonso ("Curly") Jackson's been in charge.
Although Howard was gracious, mortgage brokers were less forgiving.
Lax said he believes HUD had good intentions but that the department should have sought to pass the bonus onto buyers by taking $250 off FHA loan fees.
Mortgage brokers like Leyrer and Audrey Acquisti, president of the Michigan Mortgage Brokers Association, say HUD should be held accountable for its actions.
"If anyone should know those laws," Acquisti said, "it would be HUD."
No, Audrey, that would be Howard Lax.