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Thursday, August 22, 2013

Affiliated Business Arrangements

What is an Affiliated Business Arrangement under RESPA and what is required when an originator and a settlement service provider have an affiliated business arrangement?  

An Affiliated Business Arrangement is defined in Section 8 of the Real Estate Settlement Procedures Act (RESPA) and Section 3500.14 of Regulation X, its implementing regulation, as an arrangement in which:

(1) a person who is in a position to refer business incident to or a part of a real estate settlement service involving a federally related mortgage loan, or an associate of such person has either an affiliate relationship with or a direct or beneficial ownership interest of more than 1 percent in a provider of the settlement service; and 

(2) either of such persons directly or indirectly refers such business to that provider or affirmatively influences the selection of that provider.

The term “associate” includes the following: spouse, parents, or child of the referrer; a corporation/business entity that controls the, or is under common control with, the referrer; an employer, officer, director, or partner of the referrer; and anyone who has an agreement the purpose of which is to enable a financial benefit to occur as a result of the referral of settlement services.

A referral to an affiliated business is permissible if all of the following requirements are satisfied:

(1) The consumer is provided at or prior to the time each referral is made with an Affiliated Business Arrangement Disclosure which describes the relationship (explaining the ownership and financial interest) between the provider and the loan originator, and giving an estimated charge or range of charges made by such service provider; 

(2)  The consumer is not required to use the referred service provider (with certain exceptions such as the lenders attorney, credit reporting agency and appraiser); and

(3) There is no consideration or item of value received from the arrangement other than reasonable payments for goods, facilities or services actually furnished and revenues derived from a party having an ownership interest in the provider.  

A sample Affiliated Business Arrangement Disclosure can be found in Appendix D of Regulation X. 

* Michael Barone
Director/Legal and Regulatory Compliance
Lenders Compliance Group