Mar. 25: Notes on fraud, vendor management, Zillow’s business tactics, buying leads, and MSA legality

From deep in the heart of Texas: “Sure glad Trump has a new group focusing on mortgage. We all know what a success Trump Mortgage was. ‘What could go wrong’ with the new group?”


Fraud is a continued concern of the industry. Rachel Dollar, the editor of Mortgage Fraud Blog, is a California attorney and Certified Mortgage Banker who handles litigation for mortgage lenders, servicers, and financial institutions. She sent a write up of the incident where Kristen Ayala pled guilty to one count of conspiracy to commit wire fraud which carries a maximum potential sentence of 30 years in prison.


On its part, MGIC points out that, “Tax fraud is a rapidly growing concern for many. Did you know that identity theft can lead to tax fraud? Recently the IRS paid out 5.8 billion in fraudulent tax refunds. Don’t let a fraudster run away with your tax refund. Our informative mortgage infographic helps to illustrate some of the common ways identity theft can lead to tax fraud.”


Earlier this week the commentary was filled with vendor updates (“from soup to nuts”). I received this note from a bank compliance chief on monitoring counterparties. “Rob, every company involved in residential lending is now attached at numerous levels to various counterparties and vendors of every size and shape. Managing these relationships is critical to their well-being and future. Lenders should have clear policies spelling out now vendors are added to the approved & active list, how vendors are removed, what criteria is used for each, a schedule for review and contract renewal, the employees responsible for this, the questionnaire to be completed for each vendor, which vendors are critical. And these items and policy should be approved by the board. Vendors should be ranked, since an LOS is more important than the company that fills the vending machines. And employees should know which vendors are approved and which ones aren’t.” Thank you!


Zillow seems to be the center of attention lately. I received this note from a real estate agent in Colorado. “Zillow is a marketing machine, especially to consumers. But I am not a big fan. I can’t tell you the number of times my client starts a search using Zillow, and then e-mails me the listings. I in turn check on each one, and they’re almost already under contract – the listings were stale to begin with. And so it goes.”


And this note from a veteran branch owner. “We are almost exclusively a ‘purchase shop,’ receiving almost all of our referrals from hundreds of Realtors. Realtors send us referrals for no other reason other than our excellent service. We have great relationships with our Realtors until Zillow’s very aggressive salespeople get in touch with them, and tell them that we can and should pay for their Zillow leads, and that if we won’t they should find a lender that will. We are then faced with the choice of paying for ‘co-marketing’ or losing the Realtor relationship. Either way it is very expensive for us, and usually a loser in the end no matter which we go. Zillow’s tactics seem questionable and they are especially frustrating for us because their salespeople cavalierly upend strong relationships that we have worked extremely hard to build.”


And this from the West Coast. “I worked for a lender who had an ‘agreement’ with a real estate company to be the marketing partner for their agents. Basically, we would be their resource to reduce their expense for the monthly fee Zillow charges. It was handled compliantly – the LO paid individually for the co-market agreement. This way, if the LO co-sponsored 10 agents from that office, the check wasn’t being cut by the company. Each month, however, the LO would submit this marketing fee on his expense report for reimbursement. And while there wasn’t a formal decree to use me/us as the lender, per se, it was known and acknowledged that if the referrals weren’t provided (and they were tracked, of course), then the agreement would end.

Additionally, the agreement was to get ALL the agent’s leads, not just the Zillow ones. That is as close to paying for the business as you can get: I will pay $250 a month for your leads…or else. On the surface, it looks clean. But if you dig a little deeper, or if they start asking questions of the agents, this will be exposed.”


And lastly this. “It is basically confirmed that real estate agents can have MANY mortgage lenders paying for their entire Zillow site. Meaning, if 5 lenders pay 20% of their total costs, the realtor basically gets it for free. And who knows what happens if 3 lenders pay 50%? Plus- the term ‘Preferred Lender’ is an industry red flag. Attorneys will tell you that it really should always say something non-committal, if any header is used at all. We have some LOs who pay astronomical fees per month- thousands. And Zillow says it’s only 25% of the agent’s total budget. Hmm…the collecting of lead information is downright scary.”


LOs buying leads, and the companies they work for, should know that editor Tammy Butler published an article about things LOs and lenders need to be aware of when purchasing leads. “RESPA violations are ramping up as both the State and Federal regulators begin to explore the practices of lender/agent relationships. Of concern to most companies and sales associates are RESPA/Section 8 violations and Fair Lending violations. Both are costly to defend and the fines for breaking these rules are escalating. We have all seen the press from the last year on marketing services agreements and how those agreements have put a couple of lenders out of business. In this article, I’ll discuss another hot topic about the Top 10 things you need to know before you buy a lead or participate with a referral source in lead generation.


  1. Purchasing leads can violate Fair Lending Laws.
  2. Purchasing leads in only one area of your market versus both the non-minority and minority areas can demonstrate “redlining” because you are purposefully excluding segments of your market area.
  3. Conversely, buying leads in only minority markets and charging more than other company branches in that area for rates, points or closing costs can lead to “reverse redlining” – you could be seen as seizing opportunity to charge more to minority clients versus non-minority clients.
  4. Buying leads that are the highest credit financial profiles versus the credit profiles that fit your underwriting guidelines can demonstrate “disparate treatment/impact”. For instance, let’s say your credit score minimum is 660 and you only buy leads at 720 or higher.  This means that you are avoiding parts of your market and “cherry picking” the market.  Under ECOA this practice will likely cause issues.
  5. When you buy leads, and do not call or email people back because you perceive the deal to be “too high maintenance,” you are demonstrating Disparate Treatment. All leads, whether referral sourced or purchased, should be communicated similarly. Fair treatment under ECOA never mentions that it is okay to ignore someone because you don’t want to do business with them. As professionals, we have to take the good with the bad.
  6. When you purchase leads, and tell someone that they should not apply because you don’t have any programs that fit their needs, you demonstrate “discouragement” under ECOA. Instead, let them know what may be an issue (such as credit score) but do not discourage them from applying. Attorneys recommend this phrase: “I don’t want to discourage you from applying for a loan, because I am not the underwriter and do not make credit decisions for my company.  However, I can tell you that your credit score is 580 and the minimum guidelines for our programs is 620.  We can take your application and gather the necessary documents to send to underwriting, or I can recommend some resources (non-profit homebuyer education) that will help you with your credit profile. Which would you prefer?”
  7. Paying for a Referral Partners ad to generate leads on any platform, such as print or Internet, is a RESPA Section 8 violation unless you have shared space equal to the percentage you are contributing. For instance, if you pay for 50% of the ad, then you must have 50% of the size of the ad.
  8. Purchasing leads from lead-generator aggregators is becoming dangerous territory. Here is a quote from one of the leading consultant groups in the country about lead purchases from these aggregators and the opinions of the examiners. “Do you buy leads? We have a bank client going through an exam, and the examiners are saying that anyone purchasing leads from Zillow is actually paying for referrals, which is a RESPA Section 8 violation.  The reason is that Zillow takes information from a customer and then directs the “lead” to one mortgage company, i.e., it’s an endorsement, which means it’s a referral. We don’t know much more than that, but be careful, and talk to your attorney if you’re buying leads.”
  9. Working in the “fees” for the cost to acquire a lead will likely result in pricing disparity. For instance, if you purchase leads and you are required to pay “x” if the loan goes to application or closing, you may be collecting more in fees from that consumer to cover the cost.  Without strong business justification (and note that this is tough to defend or litigate), pricing disparity between financially similar clients may be occurring. After all, you are not adding the “cost to market” to referral sources such as real estate agents, are you?
  10. Demonstrate your due diligence by running lead ideas by your compliance or sales executives first. Get it in writing that under company policy you can do what you are thinking about so that you keep yourself out of harm’s way.


MSAs (Marketing Service Agreements) are a fine example of the nebulous nature of some of the rules and regulations faced by lenders. Attorney Ari Karen wrote a piece for the National Mortgage News giving some of his thoughts on “reading between the lines” regarding the CFPB’s intent. “Recently, the Consumer Financial Protection Bureau fined Prospect Mortgage for violations of Section 8 of the Real Estate Settlement Procedures Act. The initial reaction by many is to point to this case as additional evidence of the dangers of, and reasons to avoid, co-marketing and marketing services agreements.


“I see it differently: Notice what the CFPB did not say. Rather than determine that MSAs, lead agreements or co-marketing agreements were simply illegal, the CFPB found only certain behaviors illegal. Moreover, with all due respect to the respondents, the alleged activities are of the sort that it is not surprising that the CFPB took action. Indeed, while few would object to paying for leads, in this case the actual real estate agents — not merely the brokers — received dollars under the lead fee payments from brokers to actually steer customers to the lender. Hence, the CFPB is effectively alleging that the lead agreement was merely a vehicle to disguise actual payments to real estate agents for steering borrowers.


“With respect to the MSAs at issue in the Prospect case, the CFPB alleges that payments were reduced or discontinued, not on the basis of what services were provided, but rather based upon the capture rate of business from referrals. If true, this is a cardinal compliance sin which would predictably result in enforcement action. A similar defect was alleged with respect to desk agreements. The CFPB says these desk rentals were valued based on referrals rather than market value of the space — a fatal flaw to any such agreement.


The point is that companies engaged in various marketing efforts should not look at this latest action as an indicator that such arrangements are doomed. Rather, these enforcement actions underscore the fact that there is no substitute for a common-sense application of principles that can be drawn from prior enforcement actions and a general understanding of the regulatory and legislative intent behind the rules. Using such tools, it is not earth-shaking that the alleged activities resulted in an enforcement action. As such, those pointing to this case as further evidence that MSAs are not safe are misguided because what Prospect engaged in need not — should not — be part of any compliant marketing arrangement.”



Warning: rated PG in some parts of the country.)

The mother of a 17-year-old girl was concerned that her daughter was having sex.

Worried the girl might become pregnant and adversely impact the family’s status, she consulted the family doctor.

The doctor told her that teenagers today were very willful and any attempt to stop the girl would probably result in rebellion. He then told her to arrange for her daughter to be put on birth control and until then, talk to her and give her a box of condoms.

Later that evening, as her daughter was preparing for a date, the mother told her about the situation and handed her a box of condoms.

The girl burst out laughing and reached over to hug her mother, saying, “Oh Mom! You don’t have to worry about that! I’m dating Susan!”






(Copyright 2017 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