WASHINGTON (Reuters) - Housing counseling agencies that offer advice and assistance to struggling home buyers will be allowed to receive fees from mortgage lenders under a new, relaxed regulatory policy unveiled by the U.S. consumer watchdog on Tuesday.
The Consumer Financial Protection Bureau (CFPB) said the new policy should increase funding for nonprofit housing counseling agencies, but consumer groups said it could lead to conflicts of interest that could ultimately hurt home buyers.
The CFPB issued a no-action letter that will allow approved housing-counseling agencies to enter into financial arrangements with mortgage lenders without fear that the agency will take supervisory or enforcement action against them under the Real Estate Settlement Procedures Act (RESPA).
Specifically, the policy will exempt 1,600 agencies that participate in the Department of Housing and Urban Development’s housing counseling program from prosecution when entering into financial arrangements with lenders for pre-purchase services, such as mortgage shopping.
Kathy Kraninger, head of the CFPB, said the move aimed to boost innovation that will improve consumer access to financial services.
“New products and services can expand financial options, especially to unbanked and underbanked households,” she said.
The CFPB in February asked for public comment on whether it had given consumer-lending firms “sufficient incentives” to broaden Americans’ access to financial products and services.
The new policy responds to concerns raised by HUD that approved housing-counseling agencies have been hesitant to seek funding agreements with lenders, the CFPB said. HUD-approved housing-counseling agencies compete annually for funds from the government and other non-profit grants.
RESPA bars kickback or referral fees that may unnecessarily increase the cost of buying a home. This includes giving or receiving anything of value in exchange for referrals for homebuying services such as mortgages and title insurance.
Reuters reported in August that U.S. mortgage firms are getting back into joint marketing and advertising arrangements, emboldened by what they perceive to be the CFPB’s softer stance on RESPA enforcement.
While industry groups are likely to welcome the CFPB’s new policy, consumer groups said it would create conflicts that could potentially result in counselors steering borrowers toward more expensive mortgages or other products.
“There is not much of any explanation in the CFPB’s letter of why this is an appropriate decision,” said Center for Responsible Lending Litigation Director Will Corbett who said the move set a worrying precedent.
“It’s also unclear how the broader policy will foster more innovative financial products, or whether it will simply leave consumers without protection.”
Reporting by Katanga Johnson; Editing by Michelle Price and Cynthia Osterman