Key facts
- Private lawsuits, not regulatory bodies, are now the primary risk for mortgage referral programs.
- The Sitzer/Burnett verdict in Kansas City has emboldened plaintiffs' firms to pursue class-action lawsuits over housing transaction practices.
- A judge allowed a narrow RESPA claim against Veterans United to proceed despite dismissing most of the case.
- The Veterans United case alleges a lender's agent referral network involved steering and kickbacks.
- The author argues that compliance should be viewed through the lens of a potential plaintiff, not just a regulator.
- The shift in risk is due to plaintiffs' firms understanding the housing transaction market and having templates for such suits.
The enforcement of the Real Estate Settlement Procedures Act (RESPA) is shifting from regulatory bodies to private plaintiffs, according to commentary by Nathan Knottingham, CEO of MLO Force. Historically, compliance efforts focused on meeting the requirements of regulators like the Consumer Financial Protection Bureau (CFPB) and state examiners. However, the landscape has changed significantly since the October 31, 2023, verdict in the Sitzer/Burnett case, where the National Association of Realtors (NAR) and major brokerages were found liable for conspiring to inflate commissions, resulting in an $1.8 billion award.
This verdict, brought by home sellers and pursued by a plaintiffs' firm, has demonstrated to legal professionals that the housing transaction itself, not just the loan, is a lucrative area for class-action lawsuits. The author argues that plaintiffs' firms have gained significant knowledge of the industry's practices, including referral networks and pricing engines, which they can now reuse in new cases.
Recent examples include a RESPA class action filed by Hagens Berman against Veterans United, alleging similar steering and referral fee practices that were dismissed by most of the court but allowed to proceed on a narrow basis. The same firm has also filed against other lenders, and companies like loanDepot, CrossCountry Mortgage, and Zillow Home Loans are facing similar private RESPA actions. Optimal Blue and 26 lenders are also defending a price-fixing suit. The author notes the absence of regulatory involvement in many of these new cases, contrasting it with the discretion regulators have to drop investigations or change direction.
Knottingham suggests that the SAFE Act and subsequent exam functions have served as a compliance floor, but many in the industry treated them as a ceiling. He advises mortgage professionals to review their referral, lead, and affiliated business programs from the perspective of a potential plaintiff, focusing on whether payments align with documented services and whether harm can be argued. The key, he states, is to approach profitable channels with skepticism, as opposing counsel would.