MortgageRegulations

Why agents and brokers should treat marketing service agreements like wild animals

Lenders say MSAs are dangerous and difficult to handle

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Takeaways:

  • Just a few weeks ago, the Consumer Financial Protection Bureau applauded the actions of Wells Fargo and Prospect Mortgage, two major players in the mortgage industry, who backed off MSAs completely.
  • MSAs, in and of themselves, are not evil, but they do require a certain degree of careful oversight to ensure that those involved are referring business in the customer’s best interest.
  • Every MSA relationship, especially those that involve the exchange of money, is likely to attract regulatory scrutiny, and when it does, you need to prove that you aren’t receiving kickbacks.

A recent article I wrote for Inman posed this question: “Are your marketing service agreements (MSAs) setting off red flags at the CFPB?”

Just a few weeks ago, the CFPB applauded the actions of Wells Fargo and Prospect Mortgage, two major players in the mortgage industry, who backed off MSAs completely.

It seems that simply having an MSA is enough to attract regulators’ attention. The CFPB has gone after several lenders in recent months with enforcement actions and fines, and the CFPG has made it clear that these types of agreements are like wild animals — dangerous and difficult to handle.

Everyone in the industry is now left wondering: Are MSAs just too risky? Should other financial institutions follow in the big banks’ footsteps and back away from them entirely?

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On Forbes, mortgage writer Mark Greene recently indicated that he’s thinking along the same lines as the CFPB.

He says that because of MSAs, “homebuyers and mortgage consumers have been corralled, cajoled, herded, steered and otherwise referred to the exclusion of other lender alternatives that may have offered better financing packages.”

Greene goes on to say that he has “long considered MSAs (as actually practiced) to be in direct violation of the spirit of RESPA.”

Note the phrase: “as actually practiced.”

Laurie Ford / Shutterstock.com

Laurie Ford / Shutterstock.com

MSAs, in and of themselves, are not evil. But they do require a certain degree of careful oversight to ensure that those involved are referring business in the customer’s best interest — not because they’ll get a bonus. This distinction is where companies are getting in trouble.

Every MSA relationship, especially those that involve the exchange of money, is likely to attract regulatory scrutiny. When it does, it’s imperative that your company can prove without a doubt that it’s not receiving or giving kickbacks for services rendered.

If the consumer gets a better deal from the referral, it’s a good sign that that particular agreement is compliant with regulations.

To put this in perspective, those who interact with wild animals cannot simply have them. They are dangerous, even to those who have trained with them their whole lives. Correctly handling them takes time, effort and respect.

Similarly, companies cannot simply have an MSA. It’s an altogether different kind of animal than your typical company contract.

It takes time, effort and respect to prove to regulators that participating industry professionals are acting, well, like professionals.

Wes Miller is the CEO and co-founder of ATS Secured, a new technology category for the real estate closing industry.

Email Wes Miller.