It is a basic algebraic equation; the NAR (National Association of Realtors) and the MBA (Mortgage Bankers Association) lobbies seem to support MSAs (Marketing Services Agreements) and the CFPB (Consumer Financial Protection Bureau) armed with RESPA (Real Estate Settlement and Procedures Act) is powerless to do anything about it. At least that is the reality of decades of unchecked MSA relationships between lenders and real estate entities and an unenforced RESPA statute. As clear as RESPA may be, the practice of MSAs has become institutional and lawful or not, these arrangements are here to stay.
"I am not saying MSAs are right or wrong. I just want the CFPB to tell us whether they're legal or not," said Mortgage Bankers Association CEO David Stevens earlier this month.
Actually RESPA is pretty clear on this issue; Section 8 of RESPA prohibits anyone from giving or accepting a fee, kickback or anything of value in exchange for referrals of settlement service business involving a federally related mortgage loan. In addition, RESPA prohibits fee splitting and receiving unearned fees for services not actually performed.
In actual practice, lenders pay fees to real estate entities for first dibs, quasi exclusive access to real estate agents and buyer referrals. These fees are allegedly based on marketing services provided by the lenders to the realtors, but in reality there is a bidding process and the winning lenders are the ones who are willing to pony up the most cash every month.
RESPA or no RESPA, lawful or not, the existence and practice of MSA relationships has changed the way the real estate industry does business. The real estate business model has come to rely on lender revenues to cover fixed operating costs previously netted out of the “house’s” share of real estate commissions. This gave rise to ever increasing commission splits to attract the best talent. The days of 50/50 commission splits are long gone and the new agent compensation model giving the lion’s share of the commission to the agent is here to stay.
The model works because the lender revenue is hard wired into the real estate business plan. Unwinding the evolution of this model would require an unwinding of what has become the accepted industry norm. That is an unlikely circumstance.
Last October, the CFPB announced that it would begin policing MSAs more aggressively (CFPB Compliance Bulletin 2015-05). Several months prior to this CFPB announcement, lenders began to preemptively respond to what appeared to be the coming storm (Wells Fargo and Prospect Mortgage Drop MSA's), but that was it.
No sooner had
As a boots-on-the-ground retail mortgage originator I can report that down here in the trenches very little has changed. MSA relationships still dominate the lender/realtor landscape and while in-house lenders may be delivering competitive mortgage financing, they don’t have to compete for it.
That being said, I submit this post as my last ever installment about competing with MSAs. Except for the fact that RESPA exists, MSAs are by no means evil, many great mortgage companies and mortgage originators have helped many people secure the American dream of homeownership. Unapologetically, the MSA universe will remain firmly in residence for however long it takes for industry evolution to come up with something else.
If only that darn RESPA thing didn’t exist.
