Aug. 22: Can fees be taken from originator paychecks? Are MSAs illegal? No, but…

Having a father that served in the Navy from 1942-1962, for me this note from California was especially humorous. “Rob, at an antique store yesterday I bought, for $1.50, a 1942 US Navy ‘Responsibilities and Duties of an Ensign’ published by the Department of War. All mortgage banks should adopt this manual….we’d see a lot less do-nothings crying in the breakroom at 10AM.”


And certainly no on at Stearns Holdings, LLC (parent company of Stearns Lending, LLC) is crying about a majority stake in their company being purchased by a private equity group of Blackstone (with over $300 billion in assets under management). Quite the opposite. But more on that on Monday.


Ken Sonner sent along a Forbes article about Marketing Service Agreements. Thanks Ken! Do they really have a stranglehold on the industry? Certainly every lender that doesn’t have them wants to level the recruiting and origination playing fields with lenders that do.


Rena sent, “In the Atlanta market it is virtually a certainty that a builder will only contribute to transactional costs if the buyer uses his preferred lender(s). Typically there is a MSA in place between lender & builder. It’s common practice and everyone in the industry in the Atlanta market knows it. Too bad if it’s not me. The Buyer’s best interest to use the builder’s preferred lender. All that matters in these instances is the buyer allows the seller to dictate who & where the buyer gets his mortgage. It’s quite a racket.”


Chris C.: “MSAs have always been conducted with a wink and a nod between the parties. Both know they are using the MSA mechanism to sidestep full RESPA compliance and limit the choices of target buyers/borrowers so they could keep profits in-house. The CFPB is right in going after RESPA violators. They are starting with the larger national real estate brokerage franchises and lenders because they are bigger and slower-moving targets. Those participating in MSAs and “Strategic Alliances” are fully aware of their own non-compliance and intent. Even the NAR has published guidelines on MSAs (see attachment), though their member offices and agents tend to ignore them. Managing real estate office brokers are under huge pressure from corporate management to refer to the “preferred” lender or title company, and they transfer that pressure to the individual agents. Very few of those agents realize that by following the broker’s orders to refer to the in-house they are also exposing themselves to personal, individual RESPA enforcement. Just like mini-correspondent channels were/are an attempt to sidestep regulations, so are MSAs.”


[Editor’s note: remember when Congress actually made laws, instead of regulators making rules?]


Yes, there is concern about MSAs and attorney Brian Levy weighed in. “Recent announcements by Wells Fargo and Prospect Mortgage (and perhaps others) are raising concerns in the market about the legality of marketing services agreements. These announcements come on the heels of CFPB Director Cordray’s decision in the PHH case involving captive reinsurance (and the Lighthouse Title Consent Order prior to that) in which CFPB articulated its RESPA enforcement position that although you can pay up to reasonable value for “services rendered”, you may not have any agreement or understanding regarding referrals whatsoever in connection with those services.


“To be clear, however, CFPB has not declared MSA’s illegal.  Moreover, the PHH decision (which is being appealed) rests on new interpretations of RESPA’s Sec. 8 (c) (2) exceptions that, among other things, would seem to shift the burden of proof to require you to ‘prove you’re innocent.’ In fact, under the logic of the PHH decision, many arrangements that were commonly understood to be legal under HUD’s RESPA interpretations are now called into question. The fallout extends well beyond MSA arena. For example, consider how the entire business of mortgage brokering was legitimized under RESPA (after years of litigation and regulatory action by HUD): that is, mortgage brokers provide compensable (at least 5 out of 12) “services” to the wholesaler and are paid reasonable value for those services. This is all premised on the loan being referred to the wholesaler. If CFPB’s new 8 (c) (2) interpretations are upheld, every brokered loan could arguably be a RESPA violation.


“With these announcements (including CFPB’s press release in support of Wells and Prospect’s decisions), we can again observe CFPB flexing its enforcement powers to assert regulatory changes in ways that threaten the Constitutionally guaranteed due process rights of regulated parties.  As I have noted to your readers in the past, CFPB’s actions raise serious administrative law and due process questions. While the outcome of PHH’s appeal is uncertain, recent decisions involving SEC procedures may offer some encouragement for judicial review while Congress is also looking at whether CFPB’s structure and powers may need adjustment.  That said, CFPB is the enforcer for RESPA and they clearly do not like MSA’s.  CFPB has been granted sweeping powers to enforce consumer protection and their exercise of those powers may yet be upheld.  Any legislative or judicial relief from the status quo could take several years and may never occur.


“Accordingly, while marketing through settlement service providers in MSA’s can be a highly effective form of advertising and reaching your consumers, attention to compliance as the CFPB views it must be unwavering.  To be compliant you must remember that MSA’s are only about advertising and brand recognition.  If you have discussions or understandings regarding referrals as part of your MSA, even if you are paying reasonable value without regard to referrals ) for the marketing, CFPB will say you still have a RESPA violation.


“A company assessing the risks of MSA’s must not only assess its ability to effectively comply with the CFPB’s interpretations, it must also consider the narrative it will have about its advertising and relationship with consumers. That includes understanding the consumer impact of the MSA relationships. For example, I imagine that Wells Fargo recognized that it would be hard for the nation’s largest mortgage lender to justify the need for MSA’s based on securing brand recognition.  Likewise, given the scope of its branch network, it would be hard for Wells to justify a need for desk rentals on the basis of the need for locations alone.  Smaller lenders, however, would likely have a better story to tell in that regard, but remember, you must believe you can make an MSA work on the basis of it being nothing more than advertising (no understandings about referrals whatsoever).”  Brian can be reached at if you have questions.


And Lenders Compliance Group’s Neil Garfinkel addresses the question, “Are Marketing Services Agreements legal or are they no longer permitted?” There has been no specific ruling or order that prohibits Marketing Services Agreements (“MSAs”). However, in recent months there has been much discussion over the legality of MSAs. This is primarily due to recent enforcement actions by the Consumer Finance Protection Bureau involving MSAs and alleged illegal kickbacks. In particular, in the 2014 Lighthouse Title, Inc. Consent Order, the CFPB indicated that Lighthouse violated the Real Estate Settlement Procedures Act (RESPA) when it entered into MSAs with the ‘agreement or understanding’ that, in return, the counterparties would refer closings and title insurance business to them.


“Further, the Consent Order indicated that the parties did not determine a fair market value for the marketing services received, did not document how they valued the marketing services, and that Lighthouse did not monitor their counterparties to ensure the marketing services were actually being performed. [In the Matter of Lighthouse Title, Inc., Administrative Proceeding File No. 2014-CFPB-0015]


“More recently, the CFPB announced actions against Wells Fargo and JPMorgan Chase for engaging in illegal marketing services with a title company. The proposed Consent Order indicated the title company gave the banks’ loan officers cash, marketing materials, and consumer information in exchange for business referrals. [CFPB and State of Maryland, Office of the Attorney General v. Wells Fargo Bank, N/A, JPMorgan Chase Bank, N.A., et al, Case No. 1:15-cv-00179-RDB]


“Despite these and other actions, the CFPB has not indicated that MSAs are illegal. In fact, the CFPB has not provided any guidance regarding MSAs and continues to regulate through Consent Orders. Further, there has not been any blanket regulation or court decision banning MSAs. Although some lenders recently announced decisions to discontinue such arrangements with real estate brokers, MSAs can still serve as a viable marketing tool.


“Mortgage and real estate professionals interested in entering into or continuing MSA relationships must act prudently and maintain a compliant MSA program that monitors all aspects of the MSA relationship. MSAs should only be entered into after careful evaluation of the structure of the relationship. MSAs cannot be a proxy for illegal referral or kickback payments, nor can the arrangement require exclusivity. Further, the services to be performed under an MSA must be clearly articulated and documented within the agreement between the parties. A qualified and independent third party should determine the fair market value for the proposed services and a party should not pay or receive a fee above this amount as it could be a potential violation of Section 8 of RESPA. Prior to making any payments, the parties must, therefore, verify that the services contracted for have actually been performed. If any of the services are not rendered, a regulator may determine that all or a portion of the fee paid as part of the MSA is a referral fee in violation of Section 8 of RESPA.


“The CFPB could have chosen to state or infer that MSAs are not permitted in the above Consent Orders or in other industry guidance. While it has not done so, any party to a MSA must ensure that they have policies and procedures in place which adhere to the factors set forth above and in the Consent Orders.”


“Rob, I thought in the changes from Dodd/Frank, that mortgage companies could no longer take fees from a LO’s pay check? For instance uncollected credit report, appraisal, etc.? Was that not part of the comp change? I know one company may say one thing while another says another…” Steven Lovejoy with Shumaker Williams suggested that, “I believe they can dock the LO for violating the rules if the docking is consistent (both in terms of when and how much) and is not based on the profit in the loan. What they cannot do is vary the compensation of the LO based upon profitability of a particular loan (or differences in loan terms). So, failing to collect a credit report free or an appraisal fee can result in financial discipline, but the amount should not be based on the amount of the fee that should have been charged for credit report or appraisal. Because this gets to be a bit sticky, some lenders have eliminated the practice. By the way, the LO compensation rule did not arise out of Dodd-Frank. The Federal Reserve Board devised the rule as part of Truth-in-Lending’s Reg Z. The rule became effective in April, 2011, prior to the existence of the CFPB.”


Steve continued with, “A related issue is that I am encountering companies who think they can pay the same LO different commissions based upon whether the loan is a forward vs. reverse mortgage, government-insured vs. conventional, jumbo vs. non-jumbo. It is commonly understood that these differences in product are loan terms and the Rule prohibits different compensation based upon the type of loan product.”



(Part 5 of 5 of some trivia just in case your kids, or with the aging mortgage population, your grandkids, ask you about these things.)

In golf, where did the term ‘Caddie’ come from?

When Mary Queen of Scots went to France as a young girl, Louis, King of France, learned that she loved the Scots game ‘golf’. He had the first course outside of Scotland built for her enjoyment. To make sure she was properly chaperoned (and guarded) while she played, Louis hired cadets from a military school to accompany her. Mary liked this a lot and when she returned to Scotland (not a very good idea in the long run), she took the practice with her. In French, the word cadet is pronounced ca-day’ and the Scots changed it into caddie.

And why the odd tennis scoring?

The jump from love to 15, then to 30 seems to derive from the idea of a clock face. If four points were needed to win the game, then the first was at 15 and the second at 30. If the metaphorical clock hand, which might have been on the court in medieval France, moves first to 40, then at deuce it can proceed to 50 and then 60. And of course “ad in” and “ad out” is an abbreviation for “advantage.”

Why are many coin collection jar banks shaped like pigs?

Long ago, dishes and cookware in Europe were made of dense orange clay called ‘pygg’. When people saved coins in jars made of this clay, the jars became known as ‘pygg banks’. When an English potter misunderstood the word, he made a container that resembled a pig. And it caught on.





(Copyright 2015 Chrisman LLC. All rights reserved. Occasional paid job listings do appear. This report or any portion hereof may not be reprinted, sold or redistributed without the written consent of Rob Chrisman.)

Rob Chrisman