Oct. 17: Attorney weighs in on MSA situation; LE & pre-approvals under TRID and how the LO role has become more important

One of the interesting points made in The Trillion Dollar Letter referenced yesterday is the “Lifetime Value of a Client” from an origination perspective. Gibran Nicholas writes, “Much ado is made in our industry about the servicing value of originated loans. But not much attention has been paid to date on the lifetime value of a borrower to a company that doesn’t service loans. Per the formula outlined in the letter, the average borrower could produce over $85k in revenue and $24k in profit (at $1,500 per loan) over a 20-year relationship. Very few LOs have done a lifetime value calculation on borrowers from an origination perspective.” (For those of who missed the post yesterday, you can get a free printed version of this white paper at CMPS Institute’s booth #124 at the MBA Convention or email Gibran.)


Recruiting and growing production is top of mind for a vast majority in the industry. Steve Rennie writes, “For those of you looking to implement a business plan to organize and manage the growth of production, there is a new software platform recently introduced to the market – Model Match.  It is designed to help mortgage companies, banks and other financial services organizations build and retain production talent. It leverages the Best Practices, Processes and Methodologies developed over the years by the team at Hammerhouse along with a board that includes legal, venture capital, and SaaS Software executives. Model Match is an innovative platform with configurable goal setting that supports individual and team production hiring for mortgage companies across their entire franchise. The solution provides for stronger visibility, efficiency and accountability in the recruiting process, as well as incorporates techniques for sourcing, attracting, hiring, on-boarding and retaining production talent.”


Steve’s promotional note continued. “The platform was designed to enable organizations to efficiently and effectively manage infilling and strategic growth initiatives by leveraging a company’s best resources, their managers, leadership teams, and internal recruiting or business development groups. With easy accessibility through both online and mobile applications, Model Match is a recruiting solution for strategic growth. Set up a time to meet with a live Product Expert to see exactly how Model Match can help with your recruiting efforts. No hard sell – just a quick call and personalized demo showing you how Model Match will improve your organizations recruiting from the top down. Schedule a Demo or give us a call at 949-344-2780. We will be at NAMB in Vegas over the weekend and the MBA in San Diego next week as well.”


Attorney Brian Levy of Katten & Temple weighed in on the recent CFPB MSA Bulletin: “CFPB’s recent RESPA and MSA Compliance Bulletin 2015-05 offers another example how CFPB views its enforcement powers as the primary means to achieve its consumer protection objectives.  I have noted this unfortunate situation for your readers in other contexts, but the marketing services agreement example perhaps speaks loudest.  Make no mistake, despite the Constitutional and practical weaknesses of the CFPB’s ‘enforcement based’ regulatory approach, industry participants engaging in MSA’s must take actions to manage the ‘grave risks’ noted in the Bulletin.


“The information provided by the Bulletin, however, is problematic for a variety of reasons, some of which I note below, but, despite the exit of many leading companies from MSA’s (and desk leases) CFPB doesn’t say MSA’s are illegal. It also doesn’t offer a description of what a legal MSA would look like.  Still, the guidance from the Bulletin should be nothing new to anyone who has paid close attention to developments in the RESPA and MSA arena in recent months, namely: (i) CFPB doesn’t like MSA’s and wants the industry to be very scared about the compliance risks involved, (ii) CFPB views MSA participants as ‘guilty until proven innocent’, (iii) you will need to show more than just that the payments were reasonable (but a third party assessment can help with that), and (iv) you need an MSA compliance management program to ensure that (a) you do not pay for services not delivered, and (b) all people involved in the MSA (not just management) recognize there can be no agreement or understanding about referrals.


“CFPB seems to essentially be saying that they do not believe that you can have an MSA based on advertising without there also being agreements about referrals.  Contrary to previous HUD interpretations on RESPA’s Section 8 (c)(2) ‘services rendered’ exception, CFPB’s PHH Decision articulated CFPB’s position that even if you pay reasonable value for a service, 8(c)(2) also requires that there be no agreement regarding referrals (and CFPB also says the burden is on you to prove there isn’t such an agreement). Participants will no doubt be challenged to produce evidence that an agreement regarding referrals does not exist (it’s always hard to disprove a negative). The Bulletin suggests that CFPB’s views the biggest weakness in the compliance structure for most MSA’s as being the people at the ground level who likely still talk about referrals without understanding the implications.


“In the wake of this Bulletin, MSA participants will need to emphasize not only the components of their MSA compliance management as noted above, but also must be able to articulate a narrative of why that company needs an MSA (or desk rental) to reach consumers. Also, since these recent interpretations have not filtered to many front line salespeople, participants who desire to continue their MSAs would be wise to obtain additional training for loan originators as well the business sources in any MSA relationship so everyone understands these new expectations.


“The Bulletin, however, also is another example of how the CFPB uses enforcement to seek regulatory changes applicable to the entire industry. Setting aside the broader Constitutional issues that will be hammered out over time with this approach (keep your eyes on the appeals of Cordray’s PHH Mortgage decision in particular), the Bulletin contains numerous problems that demonstrate why relying on enforcement alone is both inappropriate and ineffective as means of regulating.


“For example, the Bulletin purports to be a summary of MSA related RESPA enforcement actions, but doesn’t even define what an MSA is and uses factual situations not involving MSA’s to articulate the Bulletin’s MSA guidance. To my knowledge, there has been only one enforcement action resulting in publically available decision involving what most would consider to be an MSA and that is the Lighthouse Title Consent Order. Yet, in the name of providing MSA guidance, the Bulletin recounts several other enforcement actions that had nothing to do with the 8 (c)(2) ‘services rendered’ type RESPA issues raised by MSAs (these other enforcement actions were related to affiliated business arrangements, UDAAP or simple RESPA Section 8 (a) “payment for referral”  violations without an ‘services rendered’ exception defense). Even more troubling, to reach several of the Bulletin’s conclusions (such as the opaque admonishment about not entering into MSAs in an effort to establish more MSAs) the Bulletin apparently relied on investigations or enforcement actions that are either on-going or concluded without public enforcement. The complete lack of transparency in using non-public information to provide industry guidance begs the question as to what other insights about how to legally operate MSAs can be gained from other non-public enforcement efforts that have resulted in no public action. As urged by Pete Mills from MBA in his memo about the Bulletin, CFPB really should provide clear guidance through notice and comment formal rulemaking.


“ATS Secured and I are offering a webinar on November 12 that will cover MSA compliance and other compliance and repurchase issues found outside of the loan file.” (Brian can be reached at blevy@kattentemple.com.)


Yes, the regulatory environment is impacting lenders, their growth plans, and business models.


Tim Swierczek, MMS with iLoan, a division of LendSmart Mortgage, writes, “Hey Rob, in response to this note in your commentary: ‘Does the growing mountain of rules and regulations from local, state, federal, and agency bodies present a problem to lenders? Absolutely! In their standard presentation the MBS puts up a slide showing the tangled & confusing web. And originators are certainly feeling it…TRID vs. ECOA? On a TBD (To Be Determined) property, if we don’t have the address for the property we don’t have an ALIEN which means it shouldn’t fall under TRID regulations. Under the ECOA law, a TBD, seems like a LO should be able to request borrower documentation & provide an approval because we must make a credit decision within 30 days. Currently companies are advertising the use of TBD approvals, but legally we cannot request 3 party verifications!’”


Tim responded with, “There is a lot of confusion around pre-approvals and TRID. It’s much simpler that people seem to realize. The TRID regulation does not allow us to require documentation to call an application an application and therefore use the lack of documentation as an excuse to avoid issuing and LE when the 6 pieces of information have been received. The regulation does not require us to issue a pre-approval without the necessary supporting documentation. This means we can issue an LE without any supporting documentation, yet we are not bound to issue a Pre-Approval. We also cannot demand documentation be for intent to proceed is given, but again since we are not required to issue a Pre-Approval without such documentation, we still have the ability and duty to inform consumers the benefit of the pre-approval and what is required to obtain one. In my opinion the CFPB has gotten it right on this issue.  They have separated the rate & fee quote from the Pre-Approval it’s that simple anything else is hyperbole.”


Steve K. sent, “In regard to Rick Goldbach’s comments, ‘I would say the biggest challenge for all of us lenders is educating the real estate agents on the TRID changes” and, ‘At the end of the day, we need to set the expectations for what is expected and deliver those promises we make up front at the mortgage application’. To the first comment, I completely agree. It is important to educate the Realtors on the new processes and how it ‘may’ affect their closings. To the latter comment, isn’t that pretty much business as usual? Haven’t you – we – always prepped our clients and agents at the beginning of the process, explaining the flow, their participation, your efforts, and what to expect? The ‘good news’ about TRID is that our role has just become exponentially more important. We’ve gone from a part of the process to the key to the process. It is an opportunity, and responsibility, to embrace. What we do want to ensure to convey to our realtor partners is the added value and importance of timely communication and joint cooperation in regard to a timely close. We need to not only convey our expectations to the borrower of what they should expect and what they will be required to provide, but we need to do the same with our Realtors. Let them know how they can positively affect the process and our ability to close on time, and what will be needed of them in order to do so. I embrace these changes and this opportunity…and so should all quality mortgage professionals.”


Sue Woodard from Vantage Production writes, “The current market environment of increased regulation is putting significant pressure on the largest banks and has created a growing opportunity for mainstream mortgage bankers. With several of the largest banks exiting wholesale lending and scaling back FHA originations, I think mainstream mortgage bankers have an unprecedented opportunity to grow market share and influence across the country.


“Very large banks that formerly dominated are leaving the field for a variety of reasons, some of them regulatory and others of them financial. But the market won’t sustain a vacuum, and many companies are moving to seize market share within their existing operating areas, while others are focused on expanding into new territories.


“The largest lenders attracted a lot of attention from regulators and consumer groups, which created a more attractive scenario for others that are less visible and beneath the radar.  We are seeing many of these companies ramping up their recruiting efforts in order to grow nationally or regionally. To recruit the best talent, they need to provide the tools proven to lead to success, such as automated sales and marketing programs, to help their originators make more loans.”



A man and woman were married for many years. Whenever there was a confrontation, yelling could be heard deep into the night. The old man would shout, “When I die, I will dig my way up and out of the grave and come back and haunt you for the rest of your life!”

Neighbors feared him.

The old man liked the fact that he was feared.

Then one evening, he died. After the burial, her neighbors, concerned for her safety, asked, “Aren’t you afraid that he may indeed be able to dig his way out of the grave and haunt you for the rest of your life?”

The wife said, “Let him dig. I had him buried upside down … and I know he won’t ask for directions.”





(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