The Consumer Financial Protection Bureau (CFPB) has issued Compliance Bulletin 2015-05 that cautions mortgage lenders against the use of marketing services agreements, saying such agreements “carry legal and regulatory risks for lenders.”
The CFPB is the enforcement agency for the Real Estate Settlement Procedures Act (“RESPA”), which prohibits kickbacks and restricts referral fees that could increase fees associated with loan origination, inspections, appraisals, title insurance and other real estate settlement services.
In June 2015, the CFPB ordered mortgage lender PHH Corp. to pay a $109 million penalty for allegedly receiving kickbacks by referring consumers to mortgage insurers. A three-judge appeals panel from the U.S. Court of Appeals for the District of Columbia Circuit has stayed that penalty while the mortgage lender appeals the CFPB’s ruling.
The bulletin notes that, “Based on the Bureau’s investigative efforts, it appears that many MSAs are designed to evade RESPA’s prohibition on the payment and acceptance of kickbacks and referral fees.” For example, the CFPB said its investigations have uncovered instances where illegal kickbacks and referral fees masqueraded as MSAs, including:
- A title company that entered into MSAs as a quid pro quo for referrals, with payments structured to reflect the number of referrals received and revenue generated;
- Companies failing to provide some or all of the services required under their MSAs, including “not performing underwriting, processing, and closing services; not executing title insurance work; not carrying out marketing services; and not delivering financing to fund the origination of loans.”
- Lenders directing advertising and promotional efforts to other settlement service providers instead of consumers in order to establish more MSAs.
- Settlement service providers burying in text the disclosure that consumers can shop for settlement services.
Two major mortgage lenders — Wells Fargo and Prospect Mortgage — recently announced that they are discontinuing all MSAs. The CFPB said that it has collected more than $75 million in penalties for the payment of improper referral fees and kickbacks and will continue to scrutinize lenders that participate in MSAs.
The attorneys at Glass & Goldberg in California provide high quality, cost-effective legal services and advice for clients in all aspects of commercial compliance, business litigation and transactional law. Call us at (818) 888-2220, send an email inquiry to info@glassgoldberg.com or visit us online at glassgoldberg.com to learn more about the firm and to sign up for future newsletters.
