Over the past several months, the Consumer Financial Protection Bureau (CFPB) has taken action on some key issues that affect the business of real estate, including new closing disclosures and a key enforcement case that has significant implications for marketing service agreements (MSAs).
On August 3, the U.S. Court of Appeals for the District of Columbia Circuit stayed the CFPB’s enforcement of a $109 million penalty and other action against PHH Corporation. In June 2014, the CFPB found PHH Corporation in violation of Section 8(a) of RESPA for a referral arrangement between PHH and preferred mortgage insurers who had agreements with PHH’s wholly owned reinsurance subsidiary, Atrium. The CFPB Director concluded that the evidence showed that mortgage insurance companies engaged in reinsurance contracts with Atrium in order to receive loan referrals from PHH, and that PHH would only refer loans to mortgage insurance companies that had such an arrangement with Atrium. The CFPB found that “PHH’s violation of Section 8(a) occurred because the mortgage insurers’ payments were linked to (and, therefore, served as compensation for) PHH’s referrals.” Among other things, PHH argued that Section 8(c)(2) of RESPA provides an affirmative defense under which PHH should not be held liable for a Section 8(a) violation since the payments at issue were fair market value for goods and services actually provided by the Atrium. The CFPB disagreed.
Although the PHH case involves mortgage insurers and reinsurance agreements, it has potentially important implications for MSAs. In the PHH matter, the director acknowledged that “there could be circumstances where a party makes a referral and is paid for providing service in connection with that referral, but is not being paid for the referral.” This statement is consistent with NAR’s contention that MSAs are legal and compliant with RESPA, provided that there is no compensation given in exchange for a referral, but the Director’s decision creates great uncertainty regarding the lawfulness of the relationship between real estate professionals and settlement service providers with whom they might enter into MSAs.
In light of these interpretations of RESPA by the CFPB, a growing number of lending institutions are discontinuing participation in MSAs with real estate agents and brokers. On July 30, Wells Fargo announced an end to MSAs, citing “increasing uncertainty surrounding regulatory oversight of these types of arrangements…” Wells Fargo says the action was effective August 1 and that existing agreements with builders, real estate professionals and other referral sources will wind down over the next 90 days. Prospect Mortgage, a top 30-ranked lender, also announced an end to its MSAs by the end of the third quarter.
NAR intends to file an amicus brief in support of PHH’s appeal of the CFPB decision, which will focus on the impact of that decision on the real estate industry, as well as seek guidance as to how MSAs can be implemented by our members. In addition, NAR continues to press CFPB for specific guidance on what forms of advertising are allowable and under what conditions. To help real estate brokerages, NAR created a RESPA Do’s and Don’ts fact sheet on MSAs, which outlines steps that should be considered when contemplating an MSA. To view this fact sheet, as well as other information relating to RESPA, visit www.realtor.org/respa.
This column is brought to you by the NAR Real Estate Services group.
Joseph Ventrone is vice president, Regulatory Policy & Industry Relations, for the National Association of REALTORS®.