Ambiguities Remain Around MSAs

By now everyone knows that at least two major lenders have pulled out of marketing services agreements with realtors following the Consumer Financial Protection Bureau’s decision in the PHH case I wrote about a few weeks ago. There are rumors swirling that others are soon to follow. 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.” This has caused a bit of a panic and led many to reevaluate their positions on marketing agreements. The CFPB had the perfect opportunity to dictate a policy that MSAs are now unlawful. The agency did not do so. Instead, the agency officially reiterated 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 in general but that are very much tolerated and permitted when undertaken responsibly and appropriately. Moreover, the decision of two large lenders to cease their MSA relationships does not require that others follow suit. There are myriad examples of larger lenders taking a more conservative approach than what is legally required. Wells Fargo and Prospect have clearly made a business decision, but that is far from a conclusion that MSAs are now in themselves illegal. The decisions in the Lighthouse Title and PHH cases should doubtless give lenders pause about whether and how they maintain their MSA relationships. Lenders that wish to continue in MSAs must begin to adopt and strenuously adhere to consistent practices with respect to entering into, negotiating, monitoring, tracking and terminating MSA relationships and training employees on the Real Estate Settlement Procedures Act. Post-PHH decision, RESPA requirements have become stricter, requiring potential modification to existing practices. The decisions in PHH and Lighthouse clearly require lenders to carefully develop and observe systemic policies to ensure that MSAs involve payments for actual marketing services and are consistently treated as such. 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.