The congresswoman wanted to know "How long will we have to hold our breath [until the rules are published]?" She wasn't aware that I had already been writing rules for six years in an attempt to implement the controlled business arrangement provisions.
It had held hearings on the problems of CLOs, controlled business arrangement regulations, escrow accounting problems and miscellaneous staffing questions.
Realtors are consumed with creating computerized loan origination systems (CLOs), controlled business arrangements
(CBAs), joint ventures or strategic partnerships, and large corporations like American Express and American Airlines are offering mortgages to their members as a value-added perk.
The department concluded that adherence to these principles mandated the following: substantially curtailing the employer-employee exception in the existing rule; limiting borrower payments to CLO services; retaining the present case-by-case federal determination on preemption of state laws; and modifying the controlled business arrangement disclosure statement.
Since 1983, the mortgage industry has been waiting for HUD to lay down fair and workable rules on controlled business arrangements and CLOs.
The final RESPA regulations expressly provide for the federal preemption of state controlled business arrangement laws that are inconsistent with RESPA, but restrict HUD from construing those provisions that impose more stringent limitations on controlled business arrangements as inconsistent with RESPA "so long as they give more protection to consumers and/or competition."
Reversing its prior position, in its final rule HUD is very supportive of flexible controlled business arrangements. Not only does it back off its prior informal interpretation, which would have included as an impermissible required use any situation where the price of one service could vary to the consumer depending on whether or not the service of an affiliated entity was used, but it also explicitly acknowledges that the "offering of a package or combination of settlement services, or the offering of discounts or rebates to consumers for the purchase of multiple settlement services, does not constitute a required use."
Under RESPA, a "controlled business arrangement" is one in which a person, entity or associate thereof, "who is in a position to refer business incident to or a part of a settlement service" refers such business to an entity in which it has either an "affiliate relationship" or a 1 percent or larger "direct or beneficial" ownership interest.
The second issue that affects many mortgage banking operations that are part of a controlled business arrangement involves the question of when a consumer is required to use a particular lender.
According to the CIC, "[T]hese phony reinsurance deals are just the latest, and among the most egregious, examples of the controlled business arrangements that infect the title-insurance business and drive up the cost of home-purchasing and refinancing."
In 1992, HUD issued its first regulation covering controlled business arrangements codified at 24 Code of Federal Regulations (CFR) 3500.15.
* Sham controlled business arrangements
. HUD's 1992 regulation was viewed by some as giving a green light to virtually any type of CBA arrangement.