MBA Issues Analysis of New MSA Guidance
The Mortgage Bankers Association issued a detailed analysis of a new Consumer Financial Protection Bureau guidance on Marketing Services Agreements, urging lenders to “immediately re-evaluate their MSA programs if they wish to avoid supervisory or enforcement scrutiny that considers many of these arrangements to be violations.”
The guidance (http://mba.informz.net/MBA/data/images/MBA MSA Guidance.pdf) notes while the CFPB Bulletin is primarily a compendium of prior public actions on MSAs, it makes the Bureau’s supervisory and enforcement intentions “crystal clear:” the CFPB views MSAs as highly risky ventures often designed to evade the Real Estate Settlement Procedures Act that hurt consumers and are likely to violate Section 8 of RESPA.
“While some market participants may argue there is ‘nothing new’ in the Bulletin, MBA views it as a strong warning to the industry to reconsider existing MSAs or any plans to establish new ones,” said MBA Senior Vice President of Residential Policy & Member Engagement Pete Mills.
The CFPB bulletin (http://files.consumerfinance.gov/f/201510_cfpb_compliance-bulletin-2015-05-respa-compliance-and-marketing-services-agreements.pdf) provides an overview of the federal prohibition on mortgage kickbacks and referral fees and describes examples from the Bureau’s enforcement experience as well as the risks faced by lenders entering into these agreements. CFPB Director Richard Cordray expressed “deep concern that MSA could undermine consumer protections against kickbacks” and said the guidance was issued to remind participants in the mortgage industry of the prohibition of kickbacks and referral fees under RESPA and describes risks posed by entering into MSAs.
RESPA is designed to eliminate kickbacks or referral fees that tend to increase unnecessarily the costs of settlement services. The law covers “myriad settlement services,” including title searches, examinations and insurance; services by an attorney; document preparation; property surveys; rendering of credit reports or appraisals; inspections; services rendered by a real estate agent or a broker; and loan origination, processing and underwriting.
The MBA analysis notes that the Bulletin is “short on actual guidance,” and can only be interpreted as a series of warnings to lenders against MSAs. “The clear message is that many MSAs violate RESPA and that the means commonly used to mitigate this risk, such as service agreements, monitoring and independent valuations, may be insufficient if referrals are found,” MBA said.
MBA noted while the Bulletin recounts several RESPA enforcement cases comprising a list of RESPA violations, it doesn’t offer any recommendations on how MSAs might be structured to comply with RESPA.
Additionally, MBA said the CFPB “offers not one example of a properly constructed MSA. Although the Bulletin highlights numerous flaws with existing MSAs that Bureau has reviewed, there is no guidance or examples of steps the parties could take to construct a compliant MSA.” MBA said the Bulletin says regardless of whether there is an agreement or monitoring of activities, if there are “referrals,” there are RESPA concerns:
“Accordingly, MBA urges its members to re-evaluate existing MSAs if they wish to avoid heightened supervisory and enforcement activity from a regulator that has ‘grave concerns’ about these arrangements,” MBA said.
From a policy standpoint, MBA said it would recommend to the CFPB that 1) any enforcement involving MSAs should not take place until a sufficient period has elapsed so companies can terminate these arrangements, and 2) the CFPB conduct a formal rulemaking on its RESPA interpretations with a full opportunity for public comment.
“Clear rules of the road are essential to a fair and competitive market to protect consumers,” MBA said.
