CFPB Explains Fickle Feedback on Marketing Services Agreements

Andrew Harrer/Bloomberg

It's no secret the Consumer Financial Protection Bureau has "grave concerns" about marketing services agreements, but the agency has so far avoided providing clear guidelines on what constitutes a legal or illegal MSA — much to the consternation of industry executives.

The CFPB's no call on MSAs is a prime example of regulatory agencies failing to set clear expectations for the mortgage industry, forcing lenders and servicers to play a guessing game with compliance, said Mortgage Bankers Association CEO David Stevens.

"I am not saying MSAs are right or wrong. I just want the CFPB to tell us whether they're legal or not," he said in a speech at a recent industry conference.

This lack of clarity has resulted in mortgage companies taking opposite approaches in how they handle MSA compliance, Stevens added.

"The bureau is aware that marketing services agreements are increasingly controversial," CFPB spokesperson Sam Gilford said in an email, adding the agency issued a compliance bulletin on MSAs in October.

"We devote significant resources to support industry’s implementation of and compliance with our rules, including providing guidance to all market participants. Our regulatory implementation resources include compliance guides, webinars, exam manuals and more," he added.

But the question over what constitutes an illegal MSAs isn't so simple.

"Most frequently, an MSA entails an agreement that, on its face and standing alone, is compliant—but the parties do not conduct themselves strictly and fully according to its terms," Gilford said. "As a result, any analysis of whether an MSA is legal or not is highly fact specific and not conducive to a simple yes-no answer."

The Real Estate Settlement Procedures Act prohibits kickbacks and referral fees between lenders, real estate agents and settlement services providers. With the CFPB issuing more than $75 million in RESPA-related penalties, the financial stakes have never been higher for mortgage companies facing numerous new regulatory requirements and compliance changes implemented after the housing crisis.

But executives have been left unnerved by what they say are unclear rulemaking, as well as uncertainty around the examination process.

"We just need clarity to do the job we want to do, to service the communities we need to serve and provide the opportunity for homeownership going forward," Stevens said.

The anti-kickback provision of RESPA is a criminal statute, "not just a mere set of rules that should apply to transactions," explained Rod Alba, a senior vice president and senior regulatory counsel for the American Bankers Association. For regulators not to define what a violation is using the traditional rulemaking procedures is unfair to lenders, he said.

FHA Firestorm

But it's not just MSA compliance that's got lenders riled up. The Federal Housing Administration set off a firestorm in September when it released a loan certification plan that appeared to make it easier for the Justice Department to pursue FHA lenders for minor loan defects.

While the FHA has since revised the requirements in an effort to assure lenders they won't be penalized for minor defects, "the language brought no clarity whatsoever," said Bill Emerson, CEO of Detroit-based Quicken Loans and this year's chairman of the Mortgage Bankers Association.

Industry leaders have had "conversation after conversation" with regulators to try to get clarity on a number of issues with no success, Emerson added during a panel presentation.

Test Anxiety

Regulatory examinations are another source of concern for lenders. HomeBridge Financial Services recently had its first CFPB audit and "it wasn't a horrible experience," said Peter Norden, the Iselin, N.J.-based lender's CEO.

The exam process has a lot to do with the specific examination team and their willingness to work with a lender, Norden said during the panel. When the examination team first arrives, executives should be sure to educate them about the business and make them feel comfortable, Emerson added.

Norden advised lenders facing an examination to be proactive about the process. Provide clear and concise answers to examiners' questions, but avoid offering extraneous details.

"They complimented us on our transparency," he said of HomeBridge's exam.

Freedom Mortgage, headquartered in Mount Laurel, N.J., will soon undergo its fourth CFPB audit, said president and CEO Stan Middleman, who added he feels more and more comfortable about the process after each one.

He "embraces" the regulatory burden placed on mortgage lenders, but said the process should be a constructive one, rather than one where rulemaking is set by enforcement actions, Middleman said during a panel presentation of lending executives.

HomeBridge, which originated $6.4 billion in mortgages across the retail, correspondent and wholesale channels during 2014, expects to spend as much as $12 million on regulatory compliance this year — prompting Norden to question how smaller lenders can afford the cost of regulation and compliance.

But lenders shouldn't look at compliance as a cost and instead should focus on "originating loans the right way in accordance with the laws," Michael Vitali, chief compliance officer at Trevose, Pa., software developer LoanLogics, said during a panel on regulatory issues.

And lenders should "run away" from anyone who claims to have a way to get around the CPFB's TILA/RESPA Integrated Disclosure rules, Vitali said. While TRID compliance is challenging, lenders should focus on meeting the spirit of the requirements, namely ensuring consumers receive accurate fee quotes and that disclosures are delivered on time. Those requirements are more likely to cause lenders problems than items like making sure fees are listed in the right order, Vitali said.