Of all of the topics at the recent MBA Legal Issues conference, I found this most interesting and most frightening for lenders; because I think the emphasis on TRID has overshadowed this very slippery slope. It was the most interesting, because 3 of the top legal minds did not agree on the viability of an MSA in today’s regulatory environment. Frightening because if they cannot agree on whether it is prudent for a lender to allow MSA Agreements then we have big problems. Problems equal litigation and litigation costs money!
I thought I would explore this topic that is so rampant in our industry, so that you are able to make an informed decision about whether or not this practice is outdated. I remember that when I left the day to day practice of being a top originator, this “new” way of selling was just getting started. Mortgage cheerleaders were singing the praises of how smart this was as a means to get business and like lemmings we followed what the others pursued. Now, those advocates and cheerleaders of this practice have no liability for the monster they created and you as the lender do. What ever happened to strong sales skills, and building relationships? Oh, and by the way Real Estate Agents you are being fined and going to jail too in these consent orders. It’s not just lenders!
So why did this all change? HUD used to monitor RESPA Section 8 violations (kickbacks). However, effective July 21, 2011 that all changed and this moved to the CFPB. HUD had to refer their section 8 cases to the Department of Justice for evaluation and litigation. The CFPB on the other hand can litigate and fine you directly. Combine that with lenders anonymously reporting other lenders and you have a perfect storm!
The CFPB clearly does not like these arrangements, and has made this evident in consent order after consent order. Since they have the power to either assess their own interpretation of the meaning of RESPA section 8 violations, or change it entirely, it is important for lenders to watch what they are doing and adjust their business accordingly.
Once the CFPB makes it clear that they don’t like a practice (and there are multiple cases showing their opinion of the MSA) they have options that your company probably does not want to contend with.
1st, they have issued consent orders that include fines, loss of license and prison time (yes some are serving jail time) for Section 8 RESPA violations. This is a trend that has occurred and IS continuing.
2nd, once they issue “acceptable practices” to us in the wording of the consent order, and a mortgage company still pursues this, the penalty for your company increases if you are next on the list. This occurs because the level of fines can increase based on whether you knew it was wrong, and those fines can be up to $1,000,000 per day. If they issued consent orders and outlined what they thought are and are not acceptable practices, and you allow them anyway……well you know!
3rd, you get to either be the “next” example or pay a group of attorneys an enormous amount of money to litigate this one your behalf.
I’ve heard from many people in the field that loan officers and sales managers don’t care about all of this regulatory stuff. They go on further to say that Real Estate agencies could care less about this to, and are accepting the extra money these agreements bring in from the highest bidder. Everyone believes that it won’t be “them” who is next on the hit list. Come on folks, you really cannot be that naïve and hope to stay in business.
If you are insistent on keeping this as a practice, your company should ramp how you offer an MSA to stay up to date on the regulatory temperament. So, for those of you who don’t want the orange, or black and white stripped jumpsuit look, I’m going to outline how these top legal minds HAVE agreed on “best practices” for an MSA in tomorrow’s posting.