MSA Compliance Update by Ari Karen and Daniella Casseres

By now everyone knows that at least two (and probably a third) major lenders have pulled out of marketing services agreements with realtors following the CFPB’s recent enforcement actions and decisions.  Moreover in connection with these announcements, the CFPB’s spokesperson applauded the moves as “an important step for the mortgage industry” adding that the agency was “concerned that such agreements can carry significant legal risk for companies and undermine transparency for consumers.”  Of course, this has caused a bit of a panic and led many to reevaluate their positions on marketing agreements. The CFPB has had many opportunities to dictate a policy that MSAs are now unlawful.  However, the agency chose not to do so.  Instead, the agency reiterated officially what we all knew – that the CFPB is suspicious of and does not necessarily view MSAs favorably.  Of course, there are many common practices the CFPB does not view favorably, but that are very much tolerated and permitted when undertaken responsibly and appropriately.  Moreover, the business decision of two (or three) large lenders to cease their MSA relationships does not require that others follow suit.  Many larger lenders will continue to take more conservative approaches to MSAs and other practices than what is legally required.  For those lenders, they have clearly made a business decision, but that is far from a conclusion that MSA’s are now per se illegal. No doubt, the CFPB’s recent enforcement actions and decisions should give lenders pause about whether and how they maintain their MSA relationships.  Further, lenders that wish to continue in MSAs must begin to adopt and strenuously adhere to best practices with respect to entering into, negotiating, monitoring, tracking and terminating MSA relationships and training employees on RESPA.  After the CFPB Director’s decision in the PHH case, those requirements have become stricter requiring potential modification to existing MSA practices.  In its PHH decision, the CFPB indicated that even agreements to pay fair market value for services can violate RESPA, if the arrangement is otherwise predicated in part on the understanding to provide referrals.  The CFPB has clearly indicated through enforcement, that lenders are required to carefully develop and observe systemic policies to ensure that MSAs involve payments for actual marketing services, and are consistently treated as such.  Nevertheless, for those lenders willing to undertake these steps, one could argue that the vacuum created by these exits have opened the doors to MSAs – not closed them. For more information, please feel free to contact Ari Karen at akaren@offitkurman.com or Daniella Casseres at dcasseres@offitkurman.com