'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 proposes effective date of Oct. 1 for new mortgage disclosure rules

Title companies and lenders who are bracing for one of the biggest shake-ups of the mortgage industry in decades may have a couple more months to prepare. 

The director of the Consumer Financial Protection Bureau announced a proposed amendment to push the effective date of the new mortgage disclosure rules from August 1, 2015 to October 1, 2015

The proposed amendment is up for public comment, and a final decision will be made afterwards; however, for all intents and purposes the new effective date is now October 1, 2015.

The CFPB discovered an "administrative error" in meeting the requirements of federal law, which ultimately resulted in the effective date being pushed into the fall. 

In a statement issued yesterday regarding the Know Before You Owe mortgage disclosure rule, Director Richard Cordray said:

"The CFPB will be issuing a proposed amendment to delay the effective date of the Know Before You Owe rule until October 1, 2015. We made this decision to correct an administrative error that we just discovered in meeting the requirements under federal law, which would have delayed the effective date of the rule by two weeks. We further believe that the additional time included in the proposed effective date would better accommodate the interests of the many consumers and providers whose families will be busy with the transition to the new school year at that time." 

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.

Representatives from the American Land Title Association, American Bankers Association and Finance Policy Center for the Urban Institute testified before Congress last May, asking for a "hold harmless" period through the end of this year. 

So far efforts to establish a hold harmless period have been unsuccessful, while the proposed amendment is expected to go final shortly. 

Your title insurance policy covers you more than you may realize

Even the most diligent of title searches cannot uncover 100 percent of title defects 100 percent of the time. Title insurance not only covers mistakes made during a title search, it covers many more issues that a title search may not reveal. 

Sometimes tardy record keeping at the government clerk's office is to blame. Other times, it may be a forged document. No matter what the issue may be, without title insurance the homeowner will be on the hook for any costs to defend title as well as any losses incurred.

While it's true that the title insurance claims rate is somewhere around 5 percent – relatively low in comparison to other forms of insurance – this number can be somewhat misleading. That's because a lot goes on behind the scenes at the title company to ensure a smooth, stress-free closing. The behind-the-scenes work doesn't always show up in the statistics.

When a title cloud is detected prior to a real estate closing, the title company-to-insure contacts the title company who handled the original settlement on behalf of the seller. In our experience, this occurs in about one out of every 10 transactions. When it does, we're usually able to resolve the issue without having to alert the seller or report a claim.

Keeping in mind that an owner's title policy ranges on average around $1,100 for a house in the District of Columbia, and the cost of legal fees to clear title could run into the tens of thousands of dollars, it just seems like good fiscal sense to purchase the added protection.

Headlines: Consumers don't shop for mortgage, title services enough

Here's a look at what's happening in real estate in the District of Columbia and beyond. 

Why DC's housing inventory shortage will continue 'for the foreseeable future'

A recent uptick in the number of homes on the market hasn’t been enough to balance an inventory shortage in the DC metro, and low inventory will likely continue to be a theme through the year. -Urban Turf

How to negotiate closing costs on a newly constructed home

Today, many builders offer incentives to the buyer in the form of either upgrades to the house or credits given at settlement that help reduce the closing costs. -Washington Post

How much for a Georgetown condo under 440 square feet?

This zero-bedroom condo thinks a lot of itself, and it should with how well it's able to transform a potentially cramped abode into a well-lit, well-furnished space. -Curbed DC

JBG acquires majority of Akridge's Half Street project by Nationals Park

DC developer Akridge has sold the majority of its Half Street parcel across from Nationals Park to The JBG Cos., which is expected to redevelop the site with two new residential buildings and a large amount of what one executive called "dramatic" retail. -Washington Business Journal

Study shows consumers spend too little time mortgage shopping

According to a recent report by the Consumer Financial Protection Bureau (CFPB) in conjunction with the Federal Housing Finance Agency, a significant number of consumers may not be shopping enough to ensure they are receiving the mortgage that best fits their circumstances. -Washington Post

Equity One unveils Westbard development plans

The condo building proposed for the Manor Care site would have 75-foot heights facing River Road, but rise 50 feet in the back to better fit in with the single-family homes in the neighborhood. The company is planning about 250 units for the two buildings. -Bethesda Magazine

How to make sure you have "good funds" for your real estate closing

Wire transfers are a very common aspect of the real estate settlement process. But for many consumers, the purchase of a home is their only exposure to wire transfers, which can lead to confusion and unnecessary stress. 

To clear up any confusion and to help prepare our clients for settlement, here is rundown of some of the questions we hear and things to consider regarding wire transfers.

I wired directly via my bank’s website and money has left my account – why don’t you have it yet?

This is a question I have gotten more than once.  Did your bank charge you a fee for this "wire"?  The answer to this follow-up question, is usually "no" or "I paid a small fee." What your bank may not be telling you is that you are actually ordering an ACH (Automated Clearing House) transaction and not a wire directly from your bank to our bank.  

You will need to check in with your bank prior to sending out funds to make sure the fee you are paying is for sending a wire and not a fee for an expedited ACH.  Our bank will not accept ACH transactions for the purchase, because the ACH funds are not considered good funds.

Why aren’t ACH funds "good funds" for purchasing my home?

An ACH goes through a clearing house. Because these are bulk transactions, the funds are not "liquid," or immediately available funds. ACH funds can be adjusted, changed or recalled by the clearing house without authorization from the accountholder. In general, our bank will not accept ACH funds for any of our accounts

Can I write a personal check?

The short answer is no. Personal checks are not considered immediately available funds. Unfortunately, not all personal checks are good when they are written – either by mistake or by design, clients sometimes fudge that funds are available. There are occasions when we can accept a personal check for a small amount of funds at closing.

What are "good funds" for closing?

A wire, cashier’s check, or a certified check is considered good funds. A wire is considered good funds because the funds are wired from your bank directly to our bank via the Federal Reserve and are immediately available. Another example of good funds would be a cashier’s check. These funds are immediately available from the bank.

A certified check is not often used as a vehicle for funds, but is still acceptable. A certified check is a personal check that has been stamped and certified by a bank official the funds are available in the account. The bank then make sure those funds are only good for that purpose. Banks rarely issue certified checks, as it is much easier to issue a cashier’s check. 

So, how do I make sure I have "good funds" for closing?

All banks are different. Have a conversation with your bank early in the process. Find out what your bank needs from you to wire funds. Ask your bank if there are any fees involved to wire funds and how much lead time the bank needs for getting funds to closing on time. Also, make sure you coordinate with your settlement agent and lender to ensure you have the correct bottom line and have the amount of funds to close readily available prior to closing.   

Taking these steps early really help to make the buying process a little less stressful.   

  • Ways to save at closing

    Title charges are the largest chunk of closing costs and can vary by hundreds of dollars.

    Learn more

  • What are closing costs?

    The real estate closing process involves loan steps, legal steps and title steps.

    Learn more

  • What's title insurance?

    Insure your legal ownership just like you'd insure the building, but for lots cheaper.

    Learn more

Connect with us

Our blog contains general information only, not intended to be relied upon as, nor a substitute for, specific professional advice. Rate tables and figures that appear on our blog are deemed reliable but not guaranteed. For current rates & policies, refer to our Quick Quote and Consumer Guide. We accept no responsibility for loss occasioned to any purpose acting on or refraining from action as a result of any material on our blog.