While conducting a recent audit, we have realized that none of our GFEs (Good Faith Estimates) have any Required Service Provider information on them. Minimally I believe that we should be putting the credit bureau and Flood Hazard Determination companies on the form. Why? Because according to RESPA it meets the test that we have "Repeatedly used these service providers over the past 12 months." - We do not use anyone else.

During discussions with Loan Operations/Lending personnel they state that "We do not REQUIRE a customer to use any company. If they wanted us to use another company for flood determinations, then we would."

I know during our last compliance exam with the FDIC this came up, however I was not part of the whole conversation and eventually we did not get cited for not doing this. The Loan Ops mgr said the FDIC asked if we had a contract with Horizon and we told them "No" and this pacified the FDIC?

My point of view is that it is irrelevant that you have a contract for the services, the litmus test is one of the three criteria as stated in the regulation, one of which we meet as I described above.

Am I missing something here? To me it is pretty cut and dried, but personnel state that they don't want to have to put Required Service Provider information on the GFE because it could have a trickle down effect that we would be required to maintain a "controlled list" of providers for all services where we really do let the customer use whomever they choose. I am trying to keep these issues seperate, but they keep comingling them together.

Anyones advice would be greatly appreciated. I hope I have not confused the issue.

FWIW, I agree with you. We list the Credit Bureaus, Flood Determination Vendor, and PMI companies and for the appraisers on line 803 we reference we have a lender controlled list.

If the customer has to ask to use a different flood vendor, and get real must customers don't even know what a flood vendor does or that you are even pulling a flood determination until after the fact, and you're not offering them a choice then you are requiring their use.

I also assume Horizon is your flood vendor, why would you do your flood determination without a contract? Without a contract they have no liability to you.

I know my reasoning is sound, it is that the thought processes around here are nuts. It is funny how people work so hard to not have to work...know what I mean?

Back when GLBA passed and we were trying to tie down all the third party servicers to get privacy/security provision addendums to our contracts was when I noticed we did not have one. I contacted Horizon and they said that actually it is not an uncommon practice. ?? The bank did not want to enter into one either. Does it make good business sense to me? No, but ultimatly it is up to the powers that be. Remember, we are just here to make "Recommendations."

Then how do you know your flood vendor guarantees their determinations? I thought a contract was required?

Mac, been there as I think all COs have been.

Oh Skittles, you are making me have to think back sooooo far! Actually they faxed me over a copy of their Certificate of Insurance and a copy of their standard contract, (yeah, the one I wanted signed).

Horizon stated that just because we did not have a signed contract did not void their warranty of the work performed. Of course we all know that it would have to be tested in a court of law to see if that statement held up. But anyway, I took both to the powers that be and they did not want to sign one. Go figure.

Mac,

So based on your original scenerio, what do you do for title companies? Usually, there are only a limited number of companies that you would use repeatedly over the twelve months. I've always listed flood as a required item, but title search companies as an option to customer and not as a required provider. Even though there are a limited number and most customers won't request a specific one (except in a purchase agreement). So I don't think that repeated use always means required.

We are like you, at least we have two or three title companies that we routinely use. I can justify that one and defend that we would allow the customer to use who they want to use and the documentation would show that.

But I think when you go to pull the past 12 months worth of GFEs and you only see one Company used for flood determinations and one Company used for credit bureaus, there is a problem with not disclosing them as a Required Service Provider. I know our lenders and they are not going to ask the customer if they have someone else they would prefer to use for these services. It is a given.

I swear I pulled every discussion for the past two years on this topic from these threads (and printed them off) and I know the argument that just because you repeatedly use the same company doesnt make them Required, but when you look at these docs and they have been used Exclusively, doesn't that count for something?

This is why I am asking you guys. I am not a lender at heart here and that is why I need the feedback from those of you that deal with this stuff more frequently than I do.

Mac, I was a consumer (not commercial) lender for over 25 years and supervised an LPO-Loan Production Office for 5 years and I would agree with Dan.

Also, it would seem to me that regardless of what is being "said",,,,the fact is that your bank has established a "pattern and a practice" that would lead an examiner to believe that your bank is "requiring" your loan applicants to use the specified flood vender and credit bureau. When you look at the regulation (with emphasis added) it would seem to me that your bank has put the customer in a "must use" situation.

Quote:

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Required use means a situation in which a person must use a particular provider of a settlement service in order to have access to some distinct service or property, and the person will pay for the settlement service of the particular provider or will pay a charge attributable, in whole or in part, to the settlement service. However, the offering of a package (or combination of settlement services) or the offering of discounts or rebates to consumers for the purchase of multiple settlement services does not constitute a required use. Any package or discount must be optional to the purchaser. The discount must be a true discount below the prices that are otherwise generally available, and must not be made up by higher costs elsewhere in the settlement process.

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Well, since we cannot agree amongst ourselves here at the bank, I submitted this question to HUD. Anyone ever gone through HUD on a policy clarification? If so what was your experience?

I have never had a problem getting in contact with people at HUD or the OCC. The agency I have problems with is the OTS. I have called and emailed them several times and they have NEVER responded to any of my questions. I usually call or contact the person that is listed on their documents as the contact person. I know that if I worked like that, I would not have a job.