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If you or your company participate in MSAs (Marketing Services Agreements) consider this bulletin your fair warning about the CFPB’s unfavorable opinion of them.  The CFPB is the authority over RESPA and as such, does not seem to be happy that our industry has these arrangements in place; as they do not believe these practices may be in the best interests of the consumer.

The CFPB goes on further to state that they are receiving increased activity in “whistleblower” reports.  Yes, that’s right, other lenders are reporting other lenders.  That’s what happens when one lender attempts to block another lender from doing business! Ask any originator who tries to call on an office with an MSA agreement in place by another lender, and they will tell you that they are not allowed into the office.  Agents in that office who don’t like the MSA lender actually get in trouble with their Broker if they try to introduce another lender to agents in the office! It may have seemed like a great business strategy and for years it worked, but it is highly risky in today’s environment.

Because this “whistleblower” reporting is increasing at an unprecedented rate, the CFPB has escalated this issue, which is normal protocol when they identify a practice that may cause harm to a consumer.

There is a plethora of comments by top ranking attorneys who are warning their clients; and the MBA has chimed in as well in a National Mortgage News article on this topic,

 “Pete Mills, senior vice president of residential policy for the Mortgage Bankers Association, said the CFPB may be moving toward a new interpretation of RESPA.

“At quick glance, today’s announcement reiterates what the CFPB has been saying for months — MSAs are very high-risk and if a company has an MSA in place and there are referrals involved, it’s a violation of RESPA,” Mills said.

“That’s serious business, since RESPA is a criminal statute. MBA continues to believe that this represents a new interpretation of RESPA, and should be done through notice and comment rulemaking to provide clear and binding rules of the road for MSAs.” 

So what does this mean for you?  Nothing if you do not participate in MSA agreements, Desk Rentals or JV agreements.  However, if you do and choose to continue them, then be prepared to be scrutinized, and potentially pay to litigate.

At the end of the day you have to ask yourself if it is worth the risk to your career and the stress of possible litigation to conduct this practice.  Like all warnings from the regulatory bodies, they don’t necessarily tell you that you “can’t” do it (as of now), however, if you choose to do it then consider the litigation costs to defend your position as to why you believe you can perform this activity under RESPA.  That may be a cost that is too steep or the stress of it too much!

If you look at the top lenders in the country, you will see them pulling out of these arrangements one-by-one each day.  Wells, Prospect, PHH, and Wintrust, just to name a few.  So there must be a reason don’t you think?

It’s been a great run, however, it may be time to move on to other ways of getting business.  Let’s go Old School like when I originated loans.  The person who delivered the best rates, service and customer experience for the borrower got the business. Isn’t that what free market choice for a consumer is really about?

I’m sure that we can expect further guidance or rulings as this issue moves to the front-burner of the CFPB.  It is my hope that the CFPB comes out with definitive guidance on this issue so that lenders can know for sure whether or not these arrangements are acceptable; and if they do allow them, what specific guidelines and monitoring will be expected, so that we are not caught in the “maybe” or “maybe not” world of guideline interpretation.

To read the CFPB Bulletin CLICK HERE!

Tammy Butler, Master CMB

Author Tammy Butler, Master CMB

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