Recent background

At the end of 2013, mortgage companies and real estate firms dismantled their affiliated business arrangements (AfBAs) because the 2014 Qualified Mortgage rule required profits from AfBAs be included in the 3 percent limit on fee income.

As 2014 unfolded, lenders and Realtors created “Marketing Services Agreements” (MSAs) with a lender renting space inside a real estate office, though there are other examples of questionable MSAs.

MSAs are acceptable under RESPA (Real Estate Settlement and Procedures Act), provided lenders and Realtors know how to manage three areas of business:

  1. Something of value changing hands
  2. Providing referrals
  3. Having an agreement

The most common scenario of concern is a lender renting space within a real estate office and becoming that real estate firm’s “preferred lender” by way of an MSA.

Something of value

Persons and entities subject to RESPA Section 8 are not allowed to give or receive anything of value in exchange for a referral of a federally related loan. Using the above example, the easiest way to stay in compliance with MSA rules is to hire a neutral commercial real estate broker to determine a fair-market value of the space that the lender will be renting.

A lender should not rely on the owner of the real estate firm to provide the “fair market value” of the space since he or she is not at arm’s length to make that decision.

After a neutral real estate broker establishes fair market value of the space, the real estate firm cannot add other charges, such as for the use of a photocopy machine and conference room. In addition, some MSA lenders pay for the ability to have marketing face time with the real estate agents, attend real estate office meetings and other events.

The value of these additional items is hard to qualify and, if determined by the real estate firm, becomes completely subjective.

Any amount the lender pays to the real estate firm over above fair-market value is a direct kickback. The lender is subsidizing operating costs of the real estate company.

Mortgage companies will nearly always charge the consumer more to recoup the costs. Payola schemes change from year to year, and regulators are getting better at identifying and stopping them.


Loan originators stationed inside a real estate office expect that deals will be coming their way. A Realtor may wander into your office and ask if he or she can “pick your brain” (which is code for “waste your time”) with a scenario that in no way would qualify for financing.

You spend 25 minutes, get nothing, and the Realtor uses his or her favorite loan officer at another company. If you are used as a sounding board, you should get the deal.

The best way to comply with MSA rules regarding referrals is to make the Realtors memorize a script, or read it verbatim off a cue sheet. The script could go something like: “Our in-house lender has great rates and fees. I think they do a really good job. However, you’re not required to use our in-house lender, and I always encourage my customers to shop around.”

Word on the street is that’s not how referrals are happening. Some sales agents have been pressured or strong-armed by the company owner to send more business to the in-house lender. Or the company owner provides a monetary incentive to refer customers to the in-house lender. Others say they end up with a better commission split if they send the in-house lender a minimum number of deals each month.

Lenders can offer to assist agents by helping explain why a proper referral can comply with the law. Most agents don’t complain about scripting. They are getting something of value for steering consumers in a manner that accommodates compliance.

An agreement

The agreement can be in writing or verbal. It would look something like this: Real estate firm agrees to send mortgage lending company X number of deals per month, quarter, or some other measurement of time.

RESPA rules say that there can be no quid-pro-quo agreement. Yet mortgage companies do not enter into an MSA with a real estate office unless they know there will be X number of deals per month or quarter.

Being an in-house lender requires a different approach to loan origination. Not every loan originator can find success working side-by-side with agents. Your work is examined more closely, and often agents will want to look directly into the loan file, which is prohibited. In-house originators must be able to work swiftly, quote and lock honestly, and above all deliver a shorter timeline to closing than competitors. Compete on service, not on price…or kickbacks.

Legitimate MSAs

Some mortgage companies are not asked to renew the MSA because the real estate firm found another lender willing to pay more than fair market value for the space.

It’s easy to outbid someone to get into a good real estate office. To blend loan originators with the agents on a sustainable basis is more important — and knowing when to move on. The best and most profitable MSA business models are those that understand the people side of the business and treat compliance issues with great care.

Licensed real estate agents are also subject to RESPA — so if both companies, agent and lender, are following MSA rules, everyone benefits, including consumers. Before denouncing government regulators, the owners of real estate firms and mortgage companies should sit down and quietly read the rules and fully understand what is called for. Professionals should be able to explain any rule in plain, simple, understandable language to clients, which helps clients gain confidence in us and in our industry.

The ugly truth about MSAs

Everyone is under pressure to produce deals from real estate agents. It is easier to simply buy the business than build long-term relationships.

It’s not that the mortgage lending industry can’t figure out the MSA rules. Instead, the real estate and mortgage lending industries may lack the will to follow the law.

A law that’s not enforced is like having no law at all. The reason the Consumer Financial Protection Bureau (CFPB) exists is because other agencies did not have adequate resources to enforce their laws. Mortgage lenders who are tired of being shut out of real estate offices due to MSAs want the CFPB to investigate what’s going on.

One consequence of the CFPB going after MSAs and watching the illegal MSAs wind down is that the payola will not go away. It will be hidden, done verbally and with a handshake. Each time a referral is given or received, money will be exchanged under the table — and our industry and the CFPB will have an even bigger problem because it will be harder to uncover.

Note: Author is not an attorney, and this article shall not constitute legal advice. If you have a legal question, please consult a licensed attorney located in your state who understands RESPA.

Jillayne Schlicke is the owner and operator of

Email Jillayne Schlicke.

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