Last week, the Consumer Financial Protection bureau revoked CFPB Compliance Bulletin 2015-05, the five-year old piece of legislation that essentially banned joint marketing agreements between lenders, real estate agents and other service providers involved in the business of home buying.
In a statement posted to the CFPB website on October 7, the Bureau said it “determined that Compliance Bulletin 2015-05, RESPA Compliance and Marketing Services Agreements, does not provide the regulatory clarity needed on how to comply with RESPA and Regulation X and therefore is rescinding it. The Bureau’s rescission of the Bulletin does not mean that MSAs are per se or presumptively legal.”
Going forward, the statement continued, determining whether certain MSAs violate RESPA Section 8 will depend on “specific facts and circumstances, including the details of how the MSA is structured and implemented. MSAs remain subject to scrutiny, and we remain committed to vigorous enforcement of RESPA Section 8.”
The rescinded bulletin was originally issued to “remind participants in the mortgage industry of the prohibition on kickbacks and referral fees” included in the Real Estate Settlement Procedures Act (RESPA), and to “describe the substantial risks posed by entering into marketing services agreements.” It followed investigations on the part of the CFPB which determined that “many MSAs are designed to evade RESPA’s prohibition on the payment and acceptance of kickbacks and referral fees.”
Teresa Tims of TDR Mortgage and Real Estate says joint marketing agreements are nothing but trouble for consumers.
“It’s a pay-to-play thing,” Tims says, “and the consumer is the one that takes it in the shorts. Anything where you work with an affiliate and get paid in return for leads or business is unethical. I work with title, escrow, home 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 in the first year of her career she was the “preferred mortgage lender” at a real state company. She describes the experience as “the biggest waste of time.” The agreement she was part of required her to use the company’s in-house escrow. She says the fees were triple the normal cost, and if she secured a buyer lead, she was then required to charge clients double the processing costs.
“I have direct experience in that genre, and it’s fucking bullshit,” she says. “It’s a crime to the consumer and I don’t believe in it at all.”
Bulletin 2015-05 did a decent job of explaining how joint marketing agreements, which are often thinly-veiled kickback arrangements for referrals, can increase costs for home buyers, but in describing it as a “non-binding general statement of policy” that “does not impose any new or revise any existing recordkeeping, reporting, or disclosure requirements”, the CFPB essentially released a helpful list of activities lenders should be aware of while providing no guidance or rules around how they can better comply with RESPA.
The Bureau has replaced the bulletin with 14 frequently asked questions regarding RESPA, primarily focused on Section 8 of the Act, which prohibits the practice of paying fees, kickbacks or gifts to referral sources in real estate transactions involving mortgage loans.
The FAQs provide clarity around RESPA, especially for those relatively new to the industry. They discuss, among other topics:
They also provide examples of the kinds of MSAs that are prohibited by RESPA.
According to a group of partners and associates practicing at Venable LLP’s Washington, D.C., office, who wrote about the CFPB’s action on Wednesday, the FAQs, while helpful, do not replace the original bulletin, a fact that could actually increase the confusion around MSAs.
“Industry participants will need to review the CFPB’s guidance and their MSA policies to determine if updates are needed,” the group wrote.