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   ARTICLE   |   From Scotsman Guide Residential Edition   |   August 2013

The Bead on Lead Generators

Know how to keep compliant when working with lead generators

Purchasing leads has become an integral part of the mortgage business in the past 15 years. Advances in technology have opened the door to new ways of reaching potential borrowers, and there are now a multitude of lead-generation companies offering leads found in a variety of ways.

You should know, however, that some methods used to generate leads may require the generating company to be licensed as a mortgage broker or lender. Licensing requirements vary state by state, but many states’ regulations cite the solicitation of mortgage-loan applications or the act of offering to solicit mortgage-loan applications for compensation as triggers for requiring licensing.

One example of lead generation that may require licensing is when a person visits a website that offers rate quotes from a lender — or multiple lenders — and asks the potential borrower to complete a short online application. If that application culminates in the lead generator transmitting it to a lender or broker and receiving a fee, an argument easily could be made that the transaction enters into the realm of a licensed activity.

How does the above transaction differ from online advertising? It’s different because, in general, advertising should be thought of as a passive activity. An online publication may display a lender’s interest rates or message, and they even may include a way for borrowers to contact the lender directly. This would mirror the activity that’s done in print advertising and doesn’t require licensing.

Several of the nation’s largest lead generators are licensed in most states, and some even are registered with the National Mortgage Licensing System (NMLS). Although this is not conclusive evidence that licensing is required in one state or another, it’s important to note that industry leaders would not expend time, money and effort to receive licensing without reason to do so. 

Why would it matter to you or your company if a lead generator is licensed? After all, you’re not the one doing the improper soliciting. It should be noted, however, that most states require you to avoid doing business with entities that you know or should have known needed to be licensed. The Consumer Financial Protection Bureau requires that lenders and brokers have a third-party vendor monitoring program to make sure that they’re not doing business with entities that are violating the law. In 2011, the Department of Housing and Urban Development issued a mortgagee letter that states, “Approved mortgagees must include a process for reviewing all advertisements generated by or on behalf of their company for compliance with Departmental advertising requirements as part of their Quality Control Plan.”

With all of this in mind, how can you protect yourself and your company from violating the law? Draft a policy, the length of which will depend on the size of your company. Include steps to ascertain the way in which the leads that you’re purchasing are being generated. Ask the company that’s selling the leads if they’re licensed and confirm that licensing through the NMLS.

If they’re not licensed — or even if they are — find out how they’re generating their leads to determine if their marketing activities are meeting federal and state requirements. If you’re not sure, contact a compliance expert or your state regulator. In addition, you should pay attention to the Federal Trade Commission’s rule that prohibits unfair or deceptive acts or practices in mortgage advertising. Additional information can be found online at 


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