RESPA §8 Regulates Conflicts of Interest

And What That Means for RESPA Reform

Two days after I co-hosted a lively collegial Mortgage Law Today^[1] All-Star RESPA nerd panel putting RESPA’s Section 8^[2] on the hot seat and asking whether we need RESPA at all, Brian Johnson^[3] was put on the hot seat for his Senate Banking confirmation hearing to serve as CFPB Director. Although RESPA never came up in Johnson’s testimony, the outcome of his hearing^[4] could still impact RESPA interpretation and enforcement in big ways.

Brian Johnson knows RESPA

Even if you knew he was an attorney, most non-RESPA nerds might be surprised to learn that Johnson is the first CFPB Director nominee ever to provide detailed thoughts about RESPA reform in advance.^[5] Specifically, in July 2020, as a Heritage Foundation Visiting Scholar,^[6] fresh off two-plus years as CFPB Deputy Director under Kathleen Kraninger, Johnson published RESPA Section 8—the CFPB and the President Should Act Now to Restore the Rule of Law.^[7] So, as a follow up to the MLT show and to commemorate Mr. Johnson’s likely confirmation, this seems like a perfect time to articulate my own unified theory of why RESPA is needed, reforms my framing suggests, and the existing authority a Johnson-led CFPB can use to make changes.^[8]

Despite the myriad reasons for RESPA reform discussed over and over in these Musings,^[9] as I am known to say, there are few people ready to march on Washington, DC with pitchforks and torches to demand RESPA change. Perhaps that explains why, presently, the CFPB’s laudatory deregulatory and enforcement humility initiatives fail to mention RESPA notwithstanding (i) the timely, consensus-driven, and well-considered 2024 RESPA at 50 white paper from the Mortgage Bankers Association (the “White Paper”),^[10] and (ii) my undaunted windmill tilting on RESPA issues.

Johnson’s view of RESPA and the Rule of Law

Johnson’s 2020 RESPA paper focused on how RESPA’s anti-kickback provisions were (mis)interpreted and enforced by the CFPB in ways that offend notions of due process and the rule of law: complaints that I have echoed over the years in these Musings. In fact, Johnson’s paper, while skipping the shtick, covers similar RESPA reform advocacy ground as these Musings, but with the rigor, citations, and restraint this blog mostly eschews for accessibility to a wider audience.

Importantly, among other things, Johnson’s paper covered the 8(c)(2) “services rendered” exception,^[11] Richard Cordray’s consent order guidance, and the importance of the PHH Case precedent.^[12] Admittedly, I thought PHH’s judicial rebuke was enough to settle the rule-of-law problem, but Johnson argued CFPB still needed to act further. Since every RESPA pronouncement from CFPB failed to concede or even mention PHH’s powerful precedent, Johnson was right, perhaps because he understood how the CFPB staff (previously) operated.^[13]

After highlighting how prior RESPA enforcement “violated due process and upended the rule of law”, Johnson’s paper concludes by asking for interpretive rules clarifying Section 8, as well as termination of prior CFPB guidance and enforcement positions that misinterpreted RESPA. I imagine, however, given the changes in administrative law since 2020, Johnson’s prescriptive measures focusing on guidance and enforcement positions might be framed different today to address enforceability and durability concerns.

With Johnson’s priors and the power of the CFPB Director to direct the agency’s priorities, it is not hard to imagine that RESPA reform might somehow find its way onto the CFPB’s agenda in a Johnson-led CFPB. Moreover, as I will detail below, Congress has expressly granted CFPB the power it needs to make durable reforms. And, if CFPB moves in that direction, I want to put my marker out there adding to the MBA’s White Paper. So, I’m using this Musing to detail my own RESPA theory of consumer protection to support the need for RESPA reforms. Hopefully, this will not only resonate for my audience, but also for a guy who clearly understands RESPA and is in the ideal position to do something about it.

The RESPA conflicts/narrative framework

Despite its stated consumer cost reduction premise, I have always felt RESPA was more like a specific unfair, deceptive, and/or abusive practice (UDAAP) that uniquely affects the housing market due to the size and infrequency of consumer housing finance transactions. In fact, I believe that RESPA’s Section 8 is fundamentally a UDAAP-like conflict-of-interest statute governing relationships in housing transactions. That view should inform RESPA interpretation and enforcement.

Congress, in 1974, faced the problem of opaque and uncompetitive settlement service pricing with two proposed solutions (rate regulation or conduct regulation). The Congressional record is clear, however, that Congress chose conduct regulation over price controls despite commissioning a study that recommended maximum allowable charges.^[14] Still, they kept the cost justification in the statute. Fifty years later, the cost rationale has not been tested in light of an entirely different level of price and information transparency and availability today enabled by technology, while the concern over conflicts of interest and the transaction integrity that jeopardizes is evergreen.

Congress also recognized that there are degrees of concern in the conflict-of-interest issue that can be mitigated through narrative and disclosure reflected in the exceptions it created in 1974 (such as realtor to realtor, employee/employer, and services rendered) all of which have legitimate conflict mitigating narratives. Likewise, in 1983, Congress determined that the conflicts of interest posed by affiliated business arrangements could be adequately mitigated provided there is (i) disclosure of the relationship, (ii) no requirement to use the affiliate and (iii) the only thing obtained is a return on ownership.

Regulators fail to recognize nuance

Yet, as it has been (mis) interpreted and enforced by the CFPB and, more recently, by several states,^[15] RESPA has been viewed as an almost complete prohibition of compensation for referrals to housing professionals (or anyone who a consumer trusts^[16]) with the express exceptions being essentially ignored by aggressive enforcers.^[17]

Ultimately, Congress wrote a graduated conflicts statute tempered by degrees of incentives for corruption that a particular conflict potentially creates in an advisor relationship. But the CFPB (and now several states) have been enforcing a totally binary regime. In modernizing RESPA for settlement services today, the reformers job is to acknowledge Congress’s conflict calibration in creating an updated and durable RESPA compliance structure. That will mean that regulators need to stop treating every relationship or interaction as prohibited regardless of the significance or nature of the conflict or any legitimate (conflict mitigating) narrative supporting the arrangement.^[18]

White Paper RESPA reforms

The MBA’s 2024 White Paper is the most serious RESPA reform work anyone has done, and, with one exception,^[19] I support it in full. It reflects a consensus approach to RESPA reform questions weighing consumer impact, feasibility, and interpretive principles. So, there’s no need to restate the White Paper’s reasoning or conclusions here, and I continue to urge that all of its recommendations be considered for implementation. Except as noted in footnote 19, I think all of it fits well in the conflict of interest/narrative framework I described above.

Moreover, there is significant overlap between the White Paper’s recommended RESPA enforcement principles and the CFPB’s recently announced principles for enforcement generally. Specifically, RESPA enforcers should only target demonstrable consumer harm from violations, not technical or definitional expansion just to find inconsequential violations. To provide two easy examples, CFPB should clarify (especially for some other consumer protection enforcers, that something as simple as a social media “like” isn’t a thing of value cognizable under RESPA and fractional penny-level allocation of open house flyer costs is unworthy of regulatory enforcement scrutiny. Surely, consumer protection regulators (and consumer advocates) have far more important consumer protection concerns to address than those items.

Lender to Lender Exemption Redux

Any discussion of RESPA reform is going to bring me back to the hobby horse RESPA issue I first raised with Ed. #2 in January 2020: the need for an express lender-to-lender referral exemption. Wholesale lending compliance relies entirely on HUD RESPA policy statements from 1999 and 2001 describing a mortgage brokering business process that no longer exists and requires a tortured reading of the services rendered exception (5 out of 14 services etc.), which post-Loper Bright, carries no deference. A lender-to-lender exemption would solve this RESPA trick box for mortgage brokering.

Although absent from the White Paper, this ask fits squarely within the CFPB’s exemption authority. As I have detailed in other Musings, the conflict mitigating narrative for this exemption relies on the same logic as the original realtor to realtor referral exemption granted in 1974:^[20] namely, a licensed (or exempt) lender referring a borrower to another licensed lender is a mitigated conflict risk. That is the same narrative RESPA §8(c)(3) already accepts between real estate brokers. The lack of exemption for licensed lenders contrasted with realtors made sense in 1974 because agents were licensed and mortgage brokers, for the most part, weren’t. SAFE and NMLS ended that distinction two decades ago.

If anything, the lender-to-lender referral rests on firmer ground than the realtor-to-realtor exception: SAFE/NMLS licensure supplies the same character, knowledge, and professionalism realtor licensure does, but the array of other mortgage regulations that didn’t exist in 1974 such as TRID, ATR/QM, and LO Comp layer on detailed limits and cost disclosures that the realtor exception lacks.

CFPB has express RESPA exemption authority

Despite the topic of the MLT show questioning whether RESPA should be repealed, that’s not a position anyone is seriously promoting.^[21] Reform, however, is clearly needed. And, unlike my perennial regulatory reform nemesis, TILA’s LO Compensation Rule, RESPA doesn’t require Congressional statutory amendment to be properly reformed. RESPA itself gives CFPB the tools to make durable changes to RESPA by creating express exemptions consistent with the Administrative Procedures Act. Specifically, RESPA §19(a), 12 U.S.C. §2617 (a) Issuance of regulations; exemptions, provides,

“The Bureau is authorized to prescribe such rules and regulations, to make such interpretations, and to grant such reasonable exemptions for classes of transactions, as may be necessary to achieve the purposes of this chapter.” [emphasis added]

In the current administrative law environment with judicial skepticism on grants of legislative authority, this express exemption power is significant, and even more likely to be judicially supported if an agency such as CFPB conducts serious fact-finding and applies consumer protection expertise to any documented exemption determination. Even better, if a later CFPB administration reverses course on any reform via interpretation and/or enforcement, RESPA expressly gives business a good faith compliance defense it can rely on in RESPA §19 (b) §2617 which also has an interesting state law liability shield that is almost preemptive in character.^[22]

^[1] Produced by the Chrisman Commentary.

^[2] All further references in this post to “RESPA” refer solely to Section 8 and RESPA’s antikickback provisions.

^[3] Apparently, Brian Johnson is a very common name. This particular Brian Johnson definitely should not be confused with: (i) the cap-wearing lead singer of AC/DC, (ii) this wackadoo Brian Johnson, nor even (iii) longevity freak Bryan Johnson.

^[4] Johnson hasn’t been confirmed yet, but knowledgeable folks are saying that should happen in September when Congress returns from its summer recess. Presently, Mark Paoletta, CFPB’s General Counsel, is Acting Director, taking that role on August 1, 2026 right after he had some choice comments for the Chopra era approach to financial literacy. Contrast Paoletta’s comments with those of his CFPB GC predecessor, Seth Frotman, at the 2024 Poverty Law Conference.

^[5] I think it’s fair to say that Johnson is the only CFPB Director nominee to have any thoughts whatsoever about RESPA Section 8 before taking on the role. He’s a RESPA nerd!

^[6] Johnson’s article contains the following note at the end: Brian Johnson is a Visiting Scholar in Financial Market Regulations in the Institute for Economic Freedom at The Heritage Foundation. He is the former Deputy Director of the Consumer Financial Protection Bureau. The views represented here are his own. [emphasis added]. I don’t speak on behalf of anyone else in these Musings either.

^[7] Despite an “em dash” in Johnson’s title, his piece completely pre-dates large language model artificial intelligence, so you can’t write it off as AI slop. Maybe LLMs trained themselves on Johnson’s work.

^[8] I have been credibly accused (see fn # 6 of this 2024 Musing) of wanting to be a trade/advocacy group of one, and if Mr. Johnson reads this as an open letter directed to him, that wouldn’t be totally wrong. See also, my 2025 Open Letter to CFPB leadership.

^[9] See generally Levy’s Mortgage Musings and filter for “RESPA”.

^[10] As one of the committee chairs who assisted with developing the White Paper’s consensus and language, I was credited as a contributor.

^[11] Historically, the CFPB never seemed to want to acknowledge the 8 (c)(2) exception at all. Just try to find an 8 (c)(2) reference in the Freedom Mortgage RESPA consent order of the Chopra era or Prospect Mortgage’s RESPA consent order of the Cordray era. I’m still looking.

^[12] Of PHH Johnson said,” It is hard to conceive of a more thorough repudiation of both the CFPB’s interpretation of RESPA Section 8 and the way it sought to impose its misinterpretation retroactively.” Amen.

^[13] In Musing Ed. #15 (August 2020), I specifically agreed with Johnson’s diagnosis 100% but pushed back on the remedy of additional guidance. I argued that PHH had already done the work and that asking a regulator for clarity often gets you something worse than the ambiguity you started with. The RESPA FAQs that were issued later in 2020 seemed to be a direct answer to Johnson’s request (without addressing PHH at all), but the CFPB’s misguided 2023 RESPA Advisory Opinion might be the exact kind of guidance he might target for termination.

^[14] See Mortgage Settlement Costs: Report of the Department of Housing and Urban Development and Veterans Administration, S. Comm. on Banking, Housing & Urban Affairs, 92d Cong., 2d Sess. (Comm. Print Mar. 1972). In 1972, during the Nixon era energy crisis times, rate regulation and price controls were not as unusual as they might be today.

^[15] With apparently more to come on the state front courtesy of New Jersey.

^[16] RESPA applies to everyone, not just housing professionals. If you trust a hairdresser, massage therapist, or even a neighbor and they get paid for referral of settlement services you purchase, that is still a conflict of interest and the kind of misuse of trust Congress prohibited by RESPA.

^[17] See fn.# 11 infra.

^[18] Much of the discussion in my 2024 post about the MBA’s White Paper explored the idea that not every conflict of interest is as corrupting of advice or unduly influential as another.

^[19] The White Paper is internally inconsistent on MSAs. Its narrative text proposes substituting disclosure for the fair market value cap, while Appendix A retains the cap in the “marketing services” definition. I would keep the FMV cap. By dropping the FMV ceiling in favor of disclosure, the 8(c)(2) “services rendered” narrative becomes unfalsifiable since any payment could be labeled “marketing”. While the reality of price transparency today (TRID, online reviews, etc.) arguably strengthens disclosure’s conflict mitigating power, disclosure only cures deception, not the underlying conflict of a trusted advisor’s self-interest. Id like to see an empirical case made before treating disclosure as adequate for MSAs like it is for AfBAs.

^[20] The realtor to realtor RESPA exemption, however, does not provide a safe harbor for UDAAP concerns.

^[21] To be clear, I am not calling for RESPA repeal, but the hypothetical discussion was worthwhile nevertheless.

^[22] “No provision of this chapter or the laws of any State imposing any liability shall apply to any act done or omitted in good faith in conformity with any rule, regulation, or interpretation thereof by the Bureau or the Attorney General, notwithstanding that after such act or omission has occurred, such rule, regulation, or interpretation is amended, rescinded, or determined by judicial or other authority to be invalid for any reason.” RESPA §19 (b) ), 12 U.S.C. §2617 (b) [emphasis added]

Brian Levy is an attorney with Katten & Temple, LLP licensed in Illinois and Wisconsin who writes the free Levy’s Mortgage Musings blog found at https://blevy.substack.com/. Mr. Levy can be reached by email at blevy@kattentemple.com. Mr. Levy’s blog is copyrighted and presented by Chrisman Commentary with permission.  All rights are reserved.