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OCC BULLETIN 2005-27
To: Chief Executive Officers and Compliance Officers of All National Banks, Department and Division Heads, and All Examining Personnel

Description: Sham Controlled Business Arrangements

The guidance attached to this bulletin continues to apply to federal savings associations.

The Office of the Comptroller of the Currency (OCC) has noted that third parties have approached some national banks to form affiliated business arrangements (ABAs) to offer real estate settlement services. National banks that choose to enter into ABAs with third parties must ensure that such arrangements comply with section 8 (12 USC 2607) of the Real Estate Settlement Procedures Act (RESPA). This bulletin is being issued to remind you of the Department of Housing and Urban Development's (HUD) 1996 policy statement on "Sham Controlled Business Arrangements," now known as affiliated business arrangements.  Although the name of the business arrangements has changed, HUD continues to stand behind its interpretation of section 8 of RESPA, as explained in the policy statement. The OCC transmitted HUD's policy statement in 1996 as an attachment to OCC Bulletin 96-41.  The OCC is redistributing the policy statement with this bulletin.

HUD's policy statement contains 10 factors that will be considered in determining whether an affiliated business entity is a bona fide provider of settlement services.  The policy statement also provides guidance for assessing whether payments to a third party are for services rendered and yield an acceptable return on ownership interest, or are for an illegal payment for the referral of settlement service business.

Due to the substantial penalties and liabilities provided in 12 USC 2607(d), national banks that have formed, or plan to form ABAs with third parties to perform real estate settlement services, should carefully review HUD's policy statement and ensure that the structure, operating agreement, and activities of these entities do not violate section 8 of RESPA.  Banks seeking to provide real estate settlement services through operating subsidiaries or noncontrolling investments also should review guidance in the OCC’s Licensing Manual, Investment in Subsidiaries and Equities (12 CFR 5.34(e)(5)(v)(V)).

You may direct any questions to your supervisory office or OCC Compliance Division (202) 649-5470.

Ann F. Jaedicke
Deputy Comptroller for Compliance Policy

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