March 7, 2021|CFPB, Fair Lending, Mortgage Industry, RESPA
Disparate Impact and Peaky Blinders
Peaky Blinders is a Netflix series my wife and I have been enjoying recently. It’s sort of a British The Sopranos set in the early 1900’s in Birmingham, England with gypsy, Irish and immigrant gangster families and brilliant sets and videography. Thomas Shelby, a recently returned WW 1 veteran, is the leader of the small Peaky Blinders gang who, despite nonstop fighting, smoking and drinking, rise to become one of Britain’s leading criminal families. Thomas is ruthless and taciturn, yet revealed over time to also be somewhat kind, loyal, conflicted and ultimately likeable in the way that you rooted for Tony Soprano despite his being a really bad guy.
Progress vs. Equality
Anyway, what do Thomas Shelby and Peaky Blinders have to do with disparate impact? In my last Musings I discussed the futility of fair lending efforts over the past 50 years in addressing the racial gap in housing. In particular, I singled out disparate impact fair lending enforcement actions as poor means of achieving progress in closing the gap.
Well, in the first episode of Season 4, Thomas, now a big industrialist, is visited by a female Communist/progressive union leader who complains about the disparity in wages paid by Shelby to his female workers vs. male workers. Shelby, the former gangster, knows exactly how to respond the union leader’s disparity complaint and simultaneously to undermine her support. Even though Thomas has sympathy for the equality issue, his neutralizing response is poignant in demonstrating how equality doesn’t equal progress. People may speak of equality as the goal, but progress is what people really want.
RESPA and Dr. Rick
Speaking of progress, I have to admit that when it comes to RESPA, I often feel like Dr. Rick from the Progressive commercials, throwing away the “No fussin’, no cussin, etc.” sign when I discuss the importance of understanding your RESPA narrative. Like when I am asked, how do we use MSAs to “get around” RESPA and pay realtors or builders for referrals. People, please stop trying to figure out how to break the law and instead learn how to comply and still get what you want.
A whole (sale) lot of trouble RESPA redux
Speaking of RESPA, I was intrigued by this past week’s news of UWM’s efforts to contractually prevent UWM’s broker customers from also working with two other competitors (Rocket Mortgage and Fairway). As the two biggest wholesale players in the country, UWM has been feuding with Rocket for years in very public ways. That feud was highlighted last summer with Anthony Casa’s inexcusable comments. Fairway’s entry into conflict with UWM seems more recent, but is perhaps even more personal, with two highly competitive Big Ten school walk-on athletes at the helm of each company.
In any event, UWM’s move is questionable from a variety of perspectives such as anti-trust law and how it may affect broker fiduciary duties in some states.[1]But, hey, I’m a RESPA nerd, so I am mostly scratching my head from that perspective. Wholesale lending and RESPA was the topic of my second Musings, and I revisited the topic again with added urgency upon the issuance of the CFPB’s RESPA FAQs. The issues I raised earlier only seem to grow larger while competition in wholesale heats up, so if you didn’t read those editions before, it is worthwhile to go back and take a look (I’ve made it easy with the links above).
According to Housing Wire, Ishbia said,
“There are 75 wholesale lenders…brokers can use all 75 — but if they are using those two, I don’t want to partner with them. That’s our belief system. I have no problem if they want to work with [those two] but I’m not going to give you our proprietary technology, that’s not for people funding the competition of the broker channel.” [emphasis added]
Housing Wire added, “UWM will require its broker partners to sign an addendum by March 15 that says they will not work with Rocket or Fairway. Ishbia said this would only affect about 25% of the 12,000 brokers who currently partner with UWM”. One thing is certain: Ishbia is 100% clear about what he wants and is putting it in writing. Any lawyer would struggle to argue he didn’t mean what he said.
So, what’s the compliant RESPA narrative[2]for UWM’s exclusionary demand? Is this like the old lender lockout debates[3]where some lenders said they should have a right to access all realtor offices to get customers-even when the realtor had their own in-house lender, or is it more like a “required use” type referral,[4]or is it something else? I’ll leave the compliant narrative to UWM’s attorneys to develop or determine if such a narrative is even necessary[5], but so far, I haven’t heard it.
[1] I also suspect that even if a broker loves working with UWM (and apparently many do), many of those brokers will still recoil at the idea of limiting their options in the marketplace.
[2] A compliant RESPA narrative is one that is premised on the need for “actual, necessary and distinct” services (such as marketing services) and is not a disguised payment or thing of value in return for referrals. See the CFPB’s October 2020 RESPA FAQs (the “FAQs”).
[3]Back in the late 1990’s there were some interesting debates about the lender lockout issue among New Jersey attorney and counsel to NJ MBA Robert Levy (no relation) and RESPRO.
[4] Per the FAQs, “Referrals include oral or written action directed to a person that has the effect of affirmatively influencing a person’s selection of a provider of a settlement service or business incident to or part of a settlement service. That effect can be on any person in connection with the settlement service or business incident thereto who will pay for the service or a charge attributable, in whole or in part, to that service or service provider. 12 CFR § 1024.14(f)(1). Additionally, referrals include requiring the use by the person paying for the service of a particular provider of settlement service-related business. 12 CFR §§ 1024.14(f)(2) and 1024.2(b) (“required use”). Finally, note that prohibited referrals are not limited to those directed to consumers. They might be directed to a number of sources, such as appraisers, real estate agents, title companies and agents, lenders, mortgage brokers, or companies that provide information in connection with settlements, such as credit reports and flood determinations. 12 CFR § 1024.14(b) and (f).
[5]See my Dr. Rick comments infra.