Another government agency appears to be cracking down on affiliated business arrangements among real estate service providers, with the U.S. Office of the Comptroller of the Currency issuing an Aug.

Another government agency appears to be cracking down on affiliated business arrangements among real estate service providers, with the U.S. Office of the Comptroller of the Currency issuing an Aug. 4 bulletin to bank CEOs and compliance officers.

“(The OCC) has noted that third parties have approached some national banks to form affiliated business arrangements to offer real estate settlement services,” Ann Jaedicke, OCC’s deputy controller for compliance policy, wrote in the bulletin.

National banks entering into real estate partnerships with third parties must comply with Section 8 of the Real Estate Settlement Procedures Act, known as RESPA, Jaedicke cautioned, warning that “substantial penalties and liabilities” exist for those who do not comply. Section 8 is the principal anti-kickback section of the act.

Affiliated business arrangements are partnerships between real estate entities such as title insurance companies, mortgage lenders and real estate brokers. The arrangements are legal under RESPA, as long as certain guidelines are followed, such as disclosing the relationships to consumers. RESPA regulates referrals and other practices in the real estate closing process.

Such arrangements this year have come under increased scrutiny by federal and state regulatory agencies. In early July, First American Title agreed to pay $680,000 in a settlement with the Department of Housing and Urban Development over a probe of alleged kickbacks involving sham affiliated business partnerships.

HUD has tripled its staff and doubled its budget over the last three years, and is currently pursuing 60 investigations into alleged violations of RESPA’s Section 8, a HUD spokesman has told Inman News. Kickbacks involving title insurance companies, lenders, and real estate brokerage companies have taken the national spotlight in the wake of a Colorado investigation into such practices.

“This bulletin is being issued to remind you of the Department of Housing and Urban Development’s 1996 policy statement of ‘Sham Controlled Business Arrangements,’ the OCC bulletin said. “Although the name of the business arrangements has changed, HUD continues to stand behind its interpretation…as explained in the policy statement.”

The OCC is the federal agency that oversees national banks.

The bulletin urges CEOs and compliance officers of all national banks, department and division heads and all examining personnel to “carefully review HUD’s policy statement and ensure that the structure, operating agreement, and activities of these entities do not violate Section 8 of RESPA.”

HUD’s policy statement appears in the June 7, 1996, Federal Register and was issued by Nicolas Retsinas, then-assistant secretary for Housing-Federal Housing. The statement describes 10 factors that will be considered in determining whether an affiliated business entity is a bona fide provider of settlement services. These factors are, in brief:

1. Does the new entity have sufficient initial capital and net worth, typical in the industry, to conduct the settlement service business for which it was created?

2. Is the new entity staffed with its own employees to perform the services it provides?

3. Does the new entity manage its own business affairs?

4. Does the new entity have an office for business which is separate from one of the parent providers?

5. Is the new entity providing substantial services, i.e., the essential functions of the real estate settlement service, for which the entity receives a fee?

6. Does the new entity perform all of the substantial services itself?

7. If the new entity contracts out some of its essential functions, does it contract services from an independent third party?

8. If the new entity contracts outwork to another party, is the party performing any contracted services receiving a payment for services or facilities provided that bears a reasonable relationship to the value of the services or goods received?

9. Is the new entity actively competing in the market place for business?

10. Is the new entity sending business exclusively to one of the settlement service providers that created it (such as the title application for a title policy to a title insurance underwriter or a loan package to a lender)?

The entire policy statement can be found at

OCC officials did not immediately return calls asking for comment.


Send tips or a Letter to the Editor to or call (510) 658-9252, ext. 140.

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