'Grave concerns' about use of Marketing Service Agreements: CFPB

'Grave concerns' about use of Marketing Service Agreements: CFPB

Having determined Marketing Service Agreements involve "substantial legal and regulatory risk," the Consumer Financial Protection Bureau issued a word of caution to the mortgage industry in a compliance bulletin published Thursday.

"We are deeply concerned about how marketing services agreements are undermining important consumer protections against kickbacks," CFPB Director Richard Cordray said in a separate statement about the bulletin. "Companies do not seem to be recognizing the extent of the risks posed by implementing and monitoring these agreements within the bounds of the law."

Marketing Service Agreements, or MSAs as they are commonly known, are usually framed as payments for advertising or promotional services, according to the bulletin, but sometimes payments are actually disguised as compensation for referrals.

"It appears that many MSAs are designed to evade RESPA's prohibition on the payment and acceptance of kickbacks and referral fees," according to the bulletin.

MSAs often involve lenders, real estate agents and third-party settlement service providers such as title companies, and they undermine the primary purpose of RESPA, which is to eliminate "kickbacks or referral fees that tend to increase unnecessarily the costs of settlement services."

Offering a thing of value in exchange for a business referral, whether it's a written or an oral agreement, is a compliance risk that leaves participants vulnerable to civil and criminal penalties, according to the bulletin.

The bulletin goes on to state RESPA violations have resulted in penalties upward of $75 million since the CFPB began taking enforcement actions.

Here at Federal Title, we've been leery of MSAs for some time. They seem to have become increasingly popular over the last couple years as the CFPB has cracked down on their not-so-distant cousin the Affiliated Business Arrangement.

CFPB to institute ‘hold harmless’ period when TRID takes effect

CFPB to institute ‘hold harmless’ period when TRID takes effect

The Consumer Financial Protection Bureau is instituting a hold-harmless period during the initial implementation of the Know Before You Owe TILA-RESPA Integrated Disclosure rule, wrote CFPB director Richard Cordray in a letter to the industry obtained by Federal Title.

The letter does not specifically state how long the hold-harmless period will last. Cordray noted in the letter CFPB’s approach is similar to the one it took to enforce mortgage rules that went into effect in January 2014, adding that the hold-harmless approach was successful at that time in making the transition to new regulations a bit smoother.

“During initial examinations for compliance with the Rule, the agencies’ examiners will evaluate an institution’s compliance management system and overall efforts to come into compliance, recognizing the scope and scale of changes necessary for each supervised institution to achieve effective compliance,” Cordray said in the letter.

The letter went to the heads of several groups in the mortgage and real estate industry, including the American Land Title Association, the National Association of REALTORS and the American Bankers Association, and is a response to their efforts to delay implementation of TRID.

“We recognize that the mortgage industry has dedicated substantial resources to understand the requirements, adapt systems, and train affected personnel, and that additional technical and other questions are likely to be identified once the new forms are used in practice after the effective date,” Cordray said in the letter.

While TRID is slated to go into effect October 3, ALTA and others continue to support legislative action to extend the hold-harmless period to February 1, 2016 and provide relief from civil liability, said ALTA CEO Michelle Korsmo in an announcement sent to members last night in response to Cordray’s letter.

What homebuyers need to know beginning this weekend

What homebuyers need to know beginning this weekend

Much of the focus of TRID has been on how it's going to change the real estate game from a business standpoint. But what do your buyers and sellers need to know about the final rule for TRID?

The folks over at Urban Turf, one of DC's most popular real estate blogs, called us yesterday and asked us to weigh in on the question.

In a nutshell, your buyers and sellers should be prepared to set aside more time for closings, especially in the beginning as the industry gets acclimated. Your buyers and sellers also need to bear in mind how sensitive the closing timeline is and be prompt when asked to provide information about their transaction.

Please take a moment to view the article and share it with your clients. Hopefully it will make the transition, which begins this weekend, a little easier for everyone.

'eClosings study': Advanced document delivery empowers homebuyers, improves grasp of closing process; technology helps

'eClosings study': Advanced document delivery empowers homebuyers, improves grasp of closing process; technology helps

HOMEBUYERS WHO RECEIVE THEIR CLOSING DOCUMENTS well in advance of their closing date are more likely to report higher levels of understanding, efficiency and empowerment regarding the real estate closing process, according to a study conducted by the Consumer Financial Protection Bureau.

CFPB Director Richard Cordray delivered prepared remarks during a forum about the pilot project known as "eClosings."

"Though the sample for this pilot was somewhat limited, the correlation between eClosings and the positive outcomes we observed is encouraging and consistent with our expectations," Cordray said.

The program seeks to assuage three primary gripes consumers have about the real estate closing process: They don't have enough time to review documents; they are overwhelmed by the sheer volume of closing documents; they discover errors in closing documents but remain under urgent pressure to close.

Over a four-month period, the project surveyed approximately 1,200 homebuyers about their feelings surrounding the real estate closing process. Some of the respondents closed with traditional paper documents, while some closed with electronic documents and others still closed with a combination of electronic and paper documents.

"[H]omebuyers end up signing documents without properly understanding or evaluating the most critical information," Cordray said. "This creates new anxiety as they worry about what was buried in the stack of paper that may create some nasty surprises in the years ahead."

The findings of the eClosings pilot program are consistent with the impetus behind the "Know Before You Owe" rule and implementation of the TILA-RESPA Integrated Disclosures that have many title agents and lenders scrambling to ensure they are in compliance by October 3 when the new rule takes effect.

Implementation of the new mortgage disclosure rules is expected to cost settlement service providers $67.8 million and lenders $207 million over the next five years, bringing the total cost to $1.3 billion. In his remarks, Cordray said eClosings "hold much promise" for the mortgage industry to improve efficiency and accuracy at a potentially lesser cost.

"While technology alone will not address all consumer concerns, eClosings do offer potential to make the process less complex," Cordray said.

View Cordray's remarks in their entirety at the CFPB newsroom.

Letter to Congress regarding H.R. 1799

Letter to Congress regarding H.R. 1799
Editor's note: Earlier this week, we caught wind of a piece of legislation that's designed to create a more even playing field between affiliated and independent title companies, the "Ensure Fair Practices of Title Insurance Act of 2015." The National Association of Independent Title Agents, asked its members to write to Congress. Federal Title's founder Todd Ewing penned this letter.

Dear Representative:

I am a real estate settlement attorney and small business owner with a staff of 17. Together we operate Federal Title & Escrow Company, the largest independent title company in Washington, D.C. I am writing to ask your support of HR 1799, the "Ensure Fair Practices of Title Insurance Act of 2015," which intends to improve competition in the settlement services industry and lower consumer cost. 

Being an independent title company means we do not share profits with referral sources through Affiliated Business Arrangements or Marketing Service Agreements – two common pay-for-business practices in the settlement services industry, also known as "legal kickbacks." Because we do not "kickback" cash to referral sources, we are able to charge about 20 percent less than affiliated title companies. Over the years, our kickback-free approach has saved consumers nearly $9 million. 

Upcoming changes in our industry, namely implementation of TILA-RESPA integrated disclosures (TRID), are putting pressure on independent title companies like ours. While we support these changes as being in the best interest of consumers, they have increased operating costs. The reality is small businesses such as our independent title company, who are being held to the same rigorous standard as large financial institutions, have struggled to remain profitable while meeting new regulations. 

HR 1799 will provide some relief to independent title companies. It is designed "to amend the Real Estate Settlement Procedures Act of 1974 (RESPA) to prohibit certain financial benefits for referrals of business and to improve the judicial relief for certain violations." In other words, it is designed to make it harder for affiliated companies who buy business instead of earning it to get ahead. 

HR 1799 is an important first step in the process of improving competition within the title industry and lowering consumer costs for title insurance, which is why I'm writing to ask your support. Independent title companies – small businesses – including ours need an even playing field not only to thrive but to survive.

Thank you for your time and consideration. 

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