Affiliate vs. "Affiliate": What's the difference between QM and RESPA?
Yes, the definition of "affiliate" is different for purposes of the ATR/QM Rule than it is under RESPA. Here's how.
I know it's frustrating, but RESPA doesn't define "affiliate" the same way that "affiliate" is defined under the QM Rule. Alas, we have to work with a different definition for the same word for these different rules. What? Under RESPA, "affiliate" is defined more broadly. So, the fact that you have an affiliate for RESPA purposes does not necessarily mean you have an affiliate for QM purposes.
Under RESPA an affiliated business disclosure is required if a borrower uses the services of an "affiliate."
Under the QM Points & Fees Test (and the HOEPA test), many charges are included only if paid to an "affiliate." For example, real estate related fees and 3rd party charges do not go towards the 3% Cap unless paid to an "affiliate."
RESPA Definition of "Affiliate"
Under RESPA, the term "affiliated business arrangement" means an arrangement where both:
There is a person who is in a position to refer business related to a mortgage (or an associate of such person) in an affiliate relationship who has a direct or beneficial ownership interest of more than 1 percent in a provider of mortgage settlement services; and
Such person directly or indirectly refers such business to that provider or affirmatively influences the selection of that provider.
QM Definition of "Affiliate"
For QM and HOEPA purposes, "Affiliate" is defined as any company that controls, is controlled by, or is under common control with another company.
"Common control" means that -
The company, directly or indirectly, owns, controls, or has power to vote 25% or more of any class of voting securities of the lender
The company controls in any manner the election of a majority of the directors or trustees of the lender; OR
The Board determines, after notice and opportunity for hearing, that the company directly or indirectly exercises a controlling influence over the management or policies of the lender.
Example: Closing Attorney on Board of Directors
So let's apply this to a concrete example.
There is a closing attorney on the board of directors at your bank. She refers a loan to a loan officer (or vice versa, the loan officer recommends the closing attorney). The loan closes and the attorney receives her standard fee.
Should an AfBA disclosure be made? Yes.
An affiliated business agreement disclosure should be given here. Under RESPA, the closing attorney is likely affiliated with the bank. The loan officer is an "associate" of the lawyer (they both work at the bank), and there is a referral of business.
Are the attorney's fees included in QM Points & Fees? No. Remember- the attorney's fees affect the 3% cap only if the attorney is an affiliate. Here, the attorney is not an affiliate (at least not without more facts). The law firm and bank are not "under common control." This is an example of how QM's definition of affiliate is narrower than RESPA's.
In other news:
While this issue IS already in front of the Supreme Court, a lower court in another case has held that Disparate Impact is illegal.
The CFPB officially adopted the QM Points & Fees Cure as an amendment to the ATR/QM Rule ... the official rule is available here.
Terry Pratchett was asked what ONE thing he would take out of the house if it was on fire. He answered, "The Fire."
Caution, little bit of self-promotion ahead! I just wanted to mention a couple of things we're doing here at Spillane Consulting (nothing new, just a reminder):
#1, we're doing more and more pre-funding QC, if you're interested in outsourcing
#2, we're helping develop Compliance ManagementSystems (compliant with FDIC and CFPB)
#3, we can help you comply with RESPA Section 8 if you have any MSA (marketing service agreements) or desk rental agreements with Realtors. We can check the language on the agreements and verify that you're not paying too much (so it looks like an illegal kickback)
Last week's article discussed the use of mortgage brokers by community banks to generate volume. Obviously, banks interested in this will be careful to find the "right" partner. Since several people reached out last week, Yes- if you would like a recommendation of a mortgage broker interested in such a partnership, please feel free to call and we can recommend someone.
What's the key to empowerment and employee engagement? Who knows! There probably is no single key. But one thing some companies do is give employees time to work on their own ideas; freedom to innovate. 3M for example, has had such a policy of "15% time" in place since 1948. This has produced some of its best inventions (including sticky notes). Google, who used to have a similar policy, also benefited from a surprising number of inventions, including the wildly popular G-Mail. According to 3M: "If there's a secret ingredient to 3M's more than 100 years of innovation, it's this: give talented people the time and resources to prove the worth of their ideas, and in the long run you'll come out well ahead. Even if those talented people are mistaken, you've learned something."
"Management that is destructively critical when mistakes are made kills initiative. And it's essential that we have many people with initiative if we are to continue to grow."
- William L. McKnight,
Former President and Chairman of the Board, 3M
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