OCC Reissues Bulletin to Ensure All Parties to RESPA Settlements Add Value

In order to ensure that each of the parties charging money in a real estate closing under the Real Estate Settlement Procedures Act add value and are not merely collecting money, the Office of the Comptroller of the Currency reissued its bulletin, "Sham Controlled Business Arrangements" on August 4.

Third parties recently have approached some national banks to form affiliated business arrangements to offer real estate settlement services, OCC reported, in its bulletin. National banks that opt to enter into such arrangements must make sure they comply with RESPA and the 1996 HUD policy statement on sham arrangements, OCC said.

HUD's policy statement lists 10 factors banks should consider in determining whether an affiliated business entity is legitimate. The 10 criteria are: (1) Does the new entity have enough initial capital and net worth to conduct settlement service? (2) Does the new entity have its own staff, or does it "borrow" staff from the parent? (3) Does the new entity manage its own business, rather than using a parent provider of referrals? (4) Does the new entity have an office separate from one of the parent providers? (5) Is the new entity providing essential real estate settlement services 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 use an independent third party, or the parent? (8) If the new entity contracts out work to another party, does the payment received bear a "reasonable relationship" to the value of services and goods received? (9) Is the new entity actively competing in the marketplace for business? and (10) Is the new entity sending business exclusively to one of the settlement service providers that created it, or to several entities?

OCC told national banks to review guidance in the agency's Licensing Manual, under Investment in Subsidiaries and Equities, for advice in providing real estate settlement services through operating subsidiaries.