CFPB eliminates ban on joint marketing agreements between mortgage, other RE professionals
Last week, the Bureau of Consumer Financial Protection revoked CFPB Compliance Bulletin 2015-05, the five-year-old law essentially banning joint marketing agreements between lenders, real estate agents, and other service providers involved in home buying.
In a statement published on the CFPB website on October 7th, the Presidium stated: “The Compliance Bulletin 2015-05 (RESPA Compliance and Marketing Services Agreements) does not provide the necessary regulatory clarity with regard to compliance with RESPA and Regulation X. and therefore it cancels. The Bureau’s withdrawal of the bulletin does not mean that MSAs are per se or presumably legal. “
In the future, the statement continued and determined whether certain MSAs are in violation of RESPA Section 8. It depends on “specific facts and circumstances, including details of the structure and implementation of the MSA. MSAs are still under control and we remain committed to strict enforcement of RESPA Section 8. “
The repealed bulletin was originally issued to “remind mortgage industry participants of the prohibition on setbacks and transfer fees” contained in the Real Estate Settlement Procedures Act (RESPA) and to “describe the significant risks involved in the Conclusion of marketing service contracts. Investigations by the CFPB followed, which found that “many MSAs are evading RESPA’s ban on paying and accepting setbacks and transfer fees.”
According to Teresa Tims of TDR Mortgage and Real Estate, joint marketing agreements are nothing but trouble for consumers.
“It’s a pay-to-play thing,” says Tims, “and the consumer is the one who takes it in the shorts.” Anything where you work with a partner and get paid in return for leads or deals is unethical. I work with property, fiduciary, house inspectors, etc. because they do a good job and give me a fair price for their expertise – not because they pay me for the business. “
Tims says that for the first year of her career she was the “preferred mortgage lender” with a real government firm. She describes the experience as “the greatest waste of time”. Due to the arrangement in which she was a party, she had to use the company’s internal deed of transfer. She says the fees are three times the normal cost, and if she had a head start, she would have to charge customers twice the handling cost.
“I’ve had direct experience in this genre and it’s fucking bullshit,” she says. “It’s a consumer crime and I don’t believe in it at all.”
The 2015-05 Bulletin decently explained how joint marketing agreements, which are often disguised kickback arrangements for referrals, can add to the cost of home buyers, but by calling it a “non-binding general policy statement” that “does not set new or revised existing record-keeping, reporting or disclosure requirements, ”the CFPB essentially published a helpful list of activities lenders should be aware of, but without providing guidelines or rules on how to better comply with RESPA.
The Bureau has replaced the bulletin with 14 Frequently Asked Questions on RESPA, mainly focusing on Section 8 of the Act which prohibits the payment of fees, setbacks or gifts to remittance sources in real estate mortgage loan transactions.
The FAQs provide clarity about RESPA, especially for those who are relatively new to the industry. Among other things, they discuss:
- The types of payments that are not prohibited under RESPA
- Which persons, organizations and transactions are covered by Section 8 of the Act?
- What specific activities are prohibited?
- What are MSAs and how does RESPA apply when determining whether an MSA is lawful?
They also provide examples of the types of MSAs that are banned by RESPA.
According to a group of partners and staff from the Venable LLP Washington, DC office who wrote on Wednesday about the CFPB’s actions, the FAQs are not a substitute for the original bulletin, which may actually add to confusion about MSAs .
“Industry participants need to review the CFPB’s guidance and their MSA guidelines to determine if updates are needed,” the group wrote.