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   ARTICLE   |   From Scotsman Guide Residential Edition   |   December 2015

Scrutiny of Marketing Pacts Ramps Up

Regulatory actions put the mortgage industry on guard

r_2015-12_casseres_spotThe Consumer Financial Protection Bureau’s (CFPB’s) recent enforcement actions concerning marketing-services agreements (MSAs), combined with the decision of several large mortgage lenders to terminate these agreements with Realtors, has left the mortgage community questioning the validity of such arrangements.

The bureau has not engaged in rulemaking or revisions to the Real Estate Settlement Procedures Act’s (RESPA’s) anti-kickback provisions and exemptions, but its enforcement actions are forcing mortgage originators to self-regulate. The CFPB’s actions have no doubt highlighted the importance of implementing strict and often onerous controls to mitigate regulatory compliance when engaging in MSAs.

Some mortgage originators, particularly the larger players often subject to the highest levels of regulatory scrutiny, have decided the compliance risk and burden of implementing effective controls outweighs the reward of business generated as a result of these arrangements. Others have re-evaluated their practices in light of the bureau’s enforcement actions and employed additional personnel to monitor compliance with such arrangements.

Those originators still considering their position on MSAs can be certain that their arrangements will be closely scrutinized by the CFPB and/or state regulators. As such, any mortgage originator that pays a Realtor, builder or other related entity on a regular basis to market its services or products should implement procedures to prevent and monitor compliance.


MSAs have been high on the bureau’s radar because they can be a way for mortgage professionals to circumvent RESPA’s anti-kickback provisions. RESPA prohibits payment or giving anything of value in exchange for the referral of settlement services.

The bureau’s recent enforcement actions penalized companies that engaged in MSAs that were contingent on the referral of mortgage business. In some of those cases, the marketing services were provided at a cost below fair market value or were not provided at all.

RESPA does permit a fair payment for actual services or goods rendered. Moreover, a person in a position to refer settlement-service business is permitted to receive payment for providing legitimate services as part of a transaction. In addition, a mortgage originator is permitted to pay a Realtor, builder or other entity in a position to refer settlement-service business for marketing services actually provided to the originator.

In this regulatory environment, however, lenders should be prepared to prove that recurring payments in connection with an MSA are not contingent on referrals. To overcome any implication of overpayment for services or for services not actually rendered, it is crucial that a company retain documentation of fair market value paid for actual services.

If loan originators are paying a monthly fee to Realtors for marketing services, the originators should follow up to assure they are getting their money’s worth. This means evaluating comparable services in the marketplace before engaging in any agreement and regularly collecting evidence of marketing conducted pursuant to any agreement with the marketing partner. This also means that agreements should carefully detail marketing services to be provided, because it will be difficult to determine a fair market value for services otherwise. Any separate payments to marketing-service partners should also be carefully reviewed to ensure that mortgage originators are not duplicating payments for a service included in an existing MSA agreement.


Another regulatory concern surrounding MSAs is any steering of business that might be deemed improper. Loan originators should avoid contracting for the exclusive right to market their services at a Realtor’s office, for example. Such clauses may limit a consumer’s shopping for mortgage financing, an important principle underlying consumer-protection laws.

Similarly, to avoid misleading consumers, any financial relationships that materially impact marketing endorsements must be disclosed. Mortgage originators that pay for marketing endorsements from partners such as Realtors, who are uniquely situated to refer mortgage business, should disclose their financial relationship with these marketing- service partners. The bureau’s enforcement actions have indicated that transparency regarding these relationships is key.

Loan originators should re-evaluate their MSAs in light of recent enforcement actions that provide important guidance on the CFPB’s interpretation of RESPA. They should also consider whether their organization’s compliance resources are sufficient to mitigate regulatory risk associated with these arrangements. 

Originators should operate under the expectation that they will need to answer and substantiate their response to one question: What are you paying for and why? 


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