Obama’s FHA Commissioner Nominee, David H. Stevens Has Ugly Past

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The Obama administration is continuing the appointment method of “crown the clowns” used at the Treasury Department to fill the Federal Housing Administration (FHA). This week it was announced the President’s nomination for FHA commissioner, David H. Stevens, would be held up due to a lawsuit alleging violations of anti-kickback RESPA law by his former company.

Violations of RESPA Accusations

U.S. Treasury DepartmentMr. Stevens was President of the accused real estate company, Long & Foster that the lawsuits contends also had an affiliate mortgage lender, Prosperity Mortgage, which itself was a joint venture between Long & Foster and mega-bank Wells Fargo.

Let’s take a trip back in time to learn about the law…

Federal law prohibits “kick backs” of “unearned fees” in a real estate transactions knowing if they were not outlawed the cost and therefore, the barriers to home ownership, would skyrocket. This actually happened in the early 1970’s before the RESPA law was enacted primarily due to “finder fees” being paid to a daisy-chain of participants.

For example, can you imagine how much the agent must build into his commission if he wants to earn 7%, but must also pay any number of “bird dogs” that led him to the client. Double that for the mortgage broker who also finds most of his clients through referrals by the real estate agent. Big banks also have more money to “buy business” from real estate agents and the Fed’s did want an unlevel playing field feeling more competition is the best way to drive the cost of home ownership lower rather than higher.

Since the “bird dogs” or referring parties don’t actually provide services to the client, the Feds figured they could simply outlaw those payments. They did so in the Real Estate Settlement and Procedures Act in 1974.

It was a good idea, but it didn’t really work. Many agents had grown accustomed to those payment and to this day still expect the mortgage broker to “kick back” something for bring him clients. Every trick in the book to “game the system” and pay real estate agents for clients against the spirit of the law has been used. Everything from the leaving an unmarked envelop filled with $100 bills after a lunch meeting between mortgage provider and agent…to joint venture agreements only created to funnel “profits” to the non-performing entity.

Okay, now back to Mr. Stevens and Long & Foster….

Email…Smemail

Agents at the Long & Foster real estate brokerage firm were allegedly “pushed” via email to use the joint venture mortgage firm, Prosperity Mortgage.

The Washington Post put it like this in November of 2007,

“In an e-mail to all Long & Foster agents and managers, P. Wesley Foster Jr. chastised his workers for funding mortgages through Bank of America more than 2,200 times last year and through Wells Fargo instead of using Long & Foster’s affiliate, Prosperity Mortgage…

The e-mail sparked criticism, with some Long & Foster agents, consumer activists and others raising concerns about whether Long & Foster executives are trying to profit at the expense of their clients’ interests.”

And simply since the agents themselves didn’t get a kickback or profit from the referral, but allegedly the company did…there is no technical violation of the law….or so says the Department of Housing and Urban Development.

Let me quote the Washington Post again,

“HUD officials declined to comment about the memo, but spokesman Brian Sullivan said business relationships between brokerages and lenders are common, but cross the line into being illegal “if the agents or office managers receive kickbacks or fees for doing nothing more than referring services.”

What’s Good For the Goose Is NOT Good For the Gander

This reminds me of a case in Denver. HUD came down hard on one of these “joint venture partnerships” between a title company and mortgage company to kickback “profits” of the newly created “JV” title company. The mortgage company in the case had a high volume of refinance business. The title company wanted all that juicy refi title income and this “joint venture” was the vehicle to get their hands on it.

As I remember, the title company was destroyed by the investigation…or by their own greed. Take your pick.

I guess it’s acceptable if the joint venture is between a real estate company and a mortgage provider, but not if the parties are a title company and a mortgage provider.

Crowning the Clowns

Well, now it’s about two years later and Mr. Stevens is up for a top job in the Obama Administration. Enter these federal lawsuits into this mess that are blocking his confirmation. It is alleged in the lawsuits that those pushy emails I mentioned earlier, may have actually been written by Mr. Stevens and Mr. Foster “simply put his name on it.”

Ooops!

Never fear, Mr. Stevens, in today’s world, this all but guarantees you the job.

Just ask Tim Geithner!

Until next week…

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About Author

Rob K. Blake, a 15 year veteran of the mortgage industry, is a renowned public speaker, author, and former radio talk show host. His blog, TheMortgageInsider.net, is dedicated to educating mortgage consumers, mortgage providers, and investors about both mortgage and housing markets.

5 Comments

  1. Well you are living proof that anyone with a PC and a a blog can self publish any crap that comes into their head. So you’re an expert on this subject. Is that right? You are going to school us all in the qualifications of David H. Stevens for the head of FHA? Oh, goodness, how fortunate the online world really is! This is a link to a discussion on this subject that took place in November 2007 on this subject just a few years ahead of yours: http://activerain.com/blogsview/262805/Client-Interests-vs-Company-Interests

    And what exactly are your qualifictions Mr. Blake? What have you done lately that qualifies you as both judge and jury in this nomination? I’ve known Wes Foster for over 22 years and Dave Stevens for the entire time he’s been at Long & Foster. And I think what you know first hand on this subject would probably fill a thimble. Or a blogpost . . .

  2. Catherine,

    It’s not me that’s concerned…I actually end the post with the notion he’s a shoe-in.

    It’s the Senate Banking Committee that halted the vote on his confirmation. Sounds like you have a beef with them, not me.

    PS: The quotes I used were snipped from a November 2007 Washington Post article…a better source than ActiveRain.com in I’d bet everyone’s option. But of course, that is exactly my point.

    HUD and the Senate Banking Committe and others are now investigating something that was deemed “okay” a few years ago. Sometimes it takes a financial crisis to get the powers that be to quit “looking the other way”.

    Of course, I was also poking fun at Obama’s proclivity for nominating controversial figures too.

    Don’t worry Catherine. He’ll get confirmed and your real estate marketing business will get a big HUD contract.

    If we’ve learned anything in the new administration is friends and defenders always get their plate at the table.

  3. Does a kick back have dollar minimun before it becomes illegal? As a referral fee thank you, can I give a coffee cup, as a very big thank you can I give coffee cup with $20′, $50′ etc.? If the mortgage broker fee is 1% always, can she (broker) create $20′, $50’s from fee for the coffee cup? Can she pay advertising or phone bill from same fee? None of the above use of fee funds cost the borrower a dime more.
    Seriously,
    J. D.

  4. Alas, Mr. Blake was correct. Nomination approved! Now look at what this monkey-ass hypocritical idiot has done to customers of Taylor, Bean, Whitaker after abruptly shuttering the company with zero warning or concern for it’s customers. Some of my wholesale customers who were in TBW’s pipeline have been directly impacted by this.

    Furthermore, as a 17yr veteran if the business, I can say without a doubt that the pressure on agents to steer business into these type of affiliated businesses is enormous, and the vast majority of the time it’s a loser deal for the customer… an abuse of their trust.

    J.D., payment of anything of value, even a cup of coffee, made with the expectation of referrals is considered illegal. It’s a zero tolerance policy.

    Obama is America’s nightmare right now. Far worse than any foreign enemy, although some contend that he is indeed a foreigner.

  5. Pingback: Taylor, Bean & Whitaker: Some New Disclosures | But Then What

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