The Consumer Financial Protection Bureau (CFPB) is going after your marketing agreements – and with a vengeance.
The CFPB has issued a series of rulings impacting Marketing Services Agreements (MSAs). These rulings include:
- Lighthouse Title, a Michigan title insurance agency, entered into MSAs with real estate brokers, with the understanding that these brokers would refer title business and mortgage closings to Lighthouse. Their agreements made it appear that payments would be based on marketing services the companies were providing to Lighthouse.
The CFPB found this arrangement violated the Real Estate Settlement Procedures Act (RESPA).
- Fidelity Mortgage Corp., a Missouri mortgage lender, entered into an agreement with a bank in which the bank referred potential borrowers to Fidelity in exchange for payments made to “lease” office space within the bank.
The CFPB determined these inflated payments were kickbacks and issued a violation against Fidelity, its former owner, and the company’s president.
- Paul Taylor, a Texas homebuilder, referred mortgage business to PTH Mortgage, a company created and owned by Benchmark Bank, Willow Bend Mortgage Company, and Paul Taylor.
The CFPB determined that the fees Paul Taylor received through this pass-through arrangement were illegal referral fees and issued a violation. The bureaus also prohibited Taylor from engaging in any future real estate services, including mortgage originations.
- Cornerstone Home Lending in Texas, paid marketing fees, including fees for “desk space,” to real estate offices. In exchange, these real estate offices:
1) Exclusively marketed Cornerstone mortgage and loan products.
2) Exclusively distributed and displayed Cornerstone advertising materials.
3) Provided exclusive office access to Cornerstone loan originators.
The CFPB determined Cornerstone violated RESPA by entering into these MSAs with real estate offices.
In all cases, fines and penalties approached or exceeded six figures.
According to CFPB Director Richard Cordray, these decisions should send a “clear and simple message that quid pro quo agreements for real estate referrals are illegal. The Consumer Bureau will continue to take action against schemes that steer consumers to lenders through unscrupulous and illegal business practices, thus ensuring the mortgage market remains a level playing field where everyone plays by the rules.”
According to the CFPB, there are now three rules you must follow for MSAs to be compliant with the Real Estate Settlement Procedures Act (RESPA).
- The MSA must have a “referral-neutral” policy.
- The compensation exchanged must be based on the value of the services provided (not based on the number of referrals expected or exchanged).
- You must keep records that prove you’re only paying for services performed.
The most notable is the “referral-neutral” policy. This states there’s likely a RESPA violation if the purpose of the MSA is to generate referrals (even if fair market value is paid for services). In other words, the CFPB is now looking at your intent when you form the MSA! They’ll be scouring your emails and combing through your records to find out if you entered the MSA in order to increase your referrals.
Its time you considered a new approach to strategic partnerships. The key is having relationships where both parties are working together to reach consumers, instead of one party doing all the heavy-lifting. Contact me to learn more about our strategic partnership programs. Let’s schedule time to discuss how we may work together in ways that are fully compliant with the CFPB’s new rules.
Warren Goldberg is President of Mortgage Wealth Advisors, a Certified Mortgage Planning Specialist®, and a published author. His interviews include Blog-Talk Radio, Newsday, and the Long Island Herald. Since 1992, he’s been sharing his financial knowledge and wealth-building strategies, including how to properly use your mortgage as a financial tool. His clients regularly express their trust and appreciation by recommending friends and family call when in need of mortgage, real estate, and financial guidance.
[…] In 2015, I wrote and published an article warning Realtors against the dangers of entering into Marketing Services Agreements (MSA’s) with lenders, title companies, or other service providers covered by RESPA (The Real Estate Settlement Procedures Act). An MSA is a relationship between a real estate broker or developer and a title company and/or mortgage company whereby the real estate office agrees to market the service of the title company or mortgage broker in exchange for a “marketing” fee. (Read, ATTN Realtors: Is Your Company’s Marketing Agreement RESPA Compliant?) […]