Now that TRID has arrived, with QM and ATR in the rear view mirror, the CFPB may start looking around for other areas of intended consumer protections. One which has recently come to light is MSA’s – Mortgage Services Agreements.
Richard Cordray, CFPB’s Director, has made it pretty clear that he does not like these type arrangements as they may not be in the best interest of the consumer.
Why? Let’s take a look. These agreements are made between a Lender and a Realtor or Builder. The intent is for the Lender to gain better access to potential business and for the Realtor/Builder to provide mortgage services to their buyers. That seems like a good deal for everyone, including the consumer.
The fly in the ointment comes from the fee paid by the Lender for this access. CFPB sees this as a potential kickback to the Realtor/Builder from a Lender for the referral of business. As we all know, that is not allowed under RESPA.
Lenders say this fee is for the ABC’s of the MSA:
- Access to provide loans to buyers
- Benefit to the Lender, the Realtor/Builder and the Consumer, and
- Compensation to the Realtor/Builder for the opportunity to do so.
Much is determined then by the compensation paid by the Lender for this access and benefits. The rules say this fee may not be based, in any way shape or form, on the volume and/or profitability of the business derived by the Lender as a result.
That means the parties to the agreement should not be adjusting the compensation periodically dependent upon how much business the Lenders obtains. For all intents and purposes, the Lender should pay a flat monthly fee (and that’s still debatable).
The fee should reasonably reflect the cost of the access. This is usually via desk/space rental by the Lender in the Realtor’s/Builder’s facility. This can be easily determined based on the rent per square foot of the facility being paid by the Realtor/Builder, plus any reasonable costs for related office services. Payment of anything more may be viewed as kickback for referrals.
From a Realtor/Builder standpoint, it would be best to have these desk rental arrangements with more than one lender in each office. This way, they can demonstrate an equality in access and compensation for each.
On the other hand, although this also better protects the lender, they may not be pleased to participate where they do not enjoy exclusivity.
When all is said and done, should these arrangements have a place in the business? Probably not. Realtors and Builders have an obligation to their buyers (and sellers). This includes the financing.
Accordingly, they should provide to their customers as many options as may be needed to obtain financing from reliable sources, at fair prices. That may not be best served if they are in an agreement with only one, or even a few, Lenders.
Lenders should not have to pay to gain access to prospective customers. If a Realtor/Builder believes the goods and services provided by a Lender are superior to others, and want for their customers to have access to their products, that access should be provided at no charge to the Lender.
Further, Lenders should not be charged a fee to place their lending literature in Realtor/Builder offices. This information, and the Lender services, is there for the benefit of the consumer as well as the Realtor or Builder. The Lender is willing to provide this information for free so why should they pay to have it placed in an area where it is most beneficial.
Those Lenders that now have these types of MSA’s should take a long hard look at not only the legality, but their overall value. In a never ending battle to cut out the competition, are they cutting their own throat?
Is lending becoming a pay to play arena? It shouldn’t be. That’s not good for the lender, or the consumer.