Two major players in the mortgage space are discontinuing marketing activities that depend on marketing services agreements because of regulatory uncertainty, recent interpretations of RESPA, and a generally toxic environment because of inconsistent Consumer Financial Protection Bureau enforcement.
Prospect Mortgage and Wells Fargo (WFC) today each announced decisions to discontinue MSAs.
Prospect expects this action to be complete by the end of the third quarter.
Wells’ decision is effective Aug. 1 and the wind down will occur over the following 90 days.
Both pointed to recent interpretations of Real Estate Settlement Procedures Act requirements, with Prospect saying they introduce substantial uncertainty to the rules and requirements applicable to MSAs.
Wells said the decision was made as a result of “increasing uncertainty surrounding regulatory oversight of these types of arrangements” and as part of Wells Fargo’s ongoing efforts to simplify the process that customers experience as they weigh all of their choices when shopping for a mortgage.
In Oct. 2014, the CFPB fined Lighthouse Title, a Michigan-based title insurance agency, for its misuse of marketing services agreements.
According to the CFPB, Lighthouse Title would enter into marketing services agreements with various companies, including real estate brokers, with the understanding that the companies would then funnel mortgage closings and title insurance business to Lighthouse.
“The agreements made it appear as if the payments would be based on marketing services the companies were supposed to provide to Lighthouse,” the CFPB said in a release.
“However, Lighthouse actually set the fees it would pay under the marketing services agreements, in part, by considering the number of referrals it received or expected to receive from each company. The CFPB’s investigation found that the companies on average referred significantly more business to Lighthouse when they had marketing services agreements than when they did not.”
The CFPB said that those actions were in violation of the Real Estate Settlement Procedures Act, which prohibits providing something of value to any person with an agreement or understanding that the person will refer real estate settlement services.
Mitchell Kider, an attorney with Weiner Brodsky Kider, who is also involved in today's announcements, told HousingWire Thursday morning that the regulatory environment is making it much more difficult for lenders to operate.
“It’s very difficult to operate MSAs in the regulatory environment we’re in right now,” said Kider.
“There’s a lot of confusion from the CFPB because of regulation and enforcement action. Lenders can’t guess how they will interpret the rules, plus new interpretations of RESPSA about Section 8A and Section 8C2… renders it impossible to operate MSAs in that environment,” Kider continued.
“The CFPB has created a situation where MSAs are not a viable solution for marketing in today’s environment,” Kider said.
Wells Fargo itself has already been the target of a CFPB fine for the misuse of marketing services agreements.
In January of this year, the CFPBand the Maryland Attorney General took action against Wells Fargo and JPMorgan Chase (JPM), for an illegal marketing services kickback scheme they participated in with Genuine Title, a now-defunct title company.
According to the bureau, Genuine Title gave the banks’ loan officers cash, marketing materials and consumer information in exchange for business referrals.
As a result, Wells Fargo would be required to pay $24 million in civil penalties, JPMorgan would be required to pay $600,000 in civil penalties, along with $11.1 million in redress to consumers whose loans were involved in this scheme.
The CFPB investigation identified more than 100 Wells Fargo loan officers in at least 18 branches, largely in Maryland and Virginia, who participated in this scheme. The bureau alleges that these loan officers referred thousands of loans to Genuine Title over the course of the scheme.
Under the proposed consent order, Wells Fargo would be required to pay $10.8 million in redress and $24 million in civil penalties.
The CFPB also filed an administrative consent order against Wells Fargo prohibiting future violations.
Prospect said that the company has taken every precaution to ensure that it is complying with the rules and guidance under applicable law. But, in light of these recent rulings, Prospect believes that MSAs are no longer a viable marketing tool for the industry, Prospect said in a written statement.
Franklin Codel, executive vice president for mortgage production at Wells Fargo, said much the same.
“Real estate firms and builders always have been—and will continue to be—very important to Wells Fargo’s retail mortgage operations, and we are exploring a number of new options for enhancing and strengthening those relationships over the long term,” Codel said.
“Because we value our strong relationships with real estate professionals and builders, the decision to exit these marketing services agreements was difficult, but we are taking this action to ensure that we continue to conduct our business in a way that represents the best interests of all of our customers and clients,” Codel added.
Doug Long, Prospect's president of National Lending, stated, “Given the uncertainty surrounding the use of MSAs, Prospect has made the decision to discontinue marketing activities that depend on these agreements. This decision has no impact on our continuing efforts and commitment to deliver the highest level of value and service to our customers and clients."
In a release, Prospect said that it knows that the home buying process can be intimidating at times — particularly for the first-time home buyer.
“For that reason, Prospect values its relationships with real estate professionals and other service providers that provide the highest quality service to consumers,” the company said.
“Prospect will continue to work closely with industry partners to increase the understanding of the process through financial education, improved products and tools that make the purchase of a home or the refinance of a mortgage a reality for Americans and reduce the risk inherent in such transactions,” the company added.
And rumors are now circulating that more firms are planning to join Wells Fargo and Prospect in exiting the MSA business.