RESPA 8

Key Reforms to RESPA Section 8 to Better Serve the Modern Mortgage Market

The Real Estate Settlement Procedures Act (RESPA) turns 50 this year. It is time to seriously explore both the continued necessity of RESPA Section 8 and key reforms to make the Section fit the modern mortgage industry. These documents focus on Section 8’s prohibitions against kickbacks and unearned fee splitting. Herein we propose several solutions to modernize RESPA and align the law with current shopping technology, protect consumers, and decrease costs and inefficiencies for both the lender and consumer.

In any other industry, it would generally be acceptable to make a payment or give a gift out of appreciation to someone who puts a buyer in touch with a seller. This is not the case in the residential mortgage industry, where such standard business practices can lead to fines or even possibly jail time. In the 1970s, Congress was concerned that mortgage settlement service providers paying and receiving referral fees to generate business were increasing prices to consumers to cover referral fee expenses.

By enacting RESPA, Congress expressed an intent to outlaw kickbacks or referral fees that unnecessarily increase the costs of settlement services. There is virtually no empirical evidence that RESPA lowered costs post enactment. Subsequent reforms to the mortgage industry regulatory environment following enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) and its implementing regulations have also called into question the purpose and necessity of RESPA Section 8.