The Consumer Financial Protection Bureau drew its previous guidance on whether marketing service agreements comply with the anti-kickback rules.
In a frequently asked question, the CFPB stated that these agreements do not violate Section 8 of the Real Estate Management Act.
While the FAQ doesn't change much on a practical level, it is a change in the office's attitude towards the leadership of Richard Cordray. His CFPB never declared MSAs illegal, but had expressed some level of hostility towards them.
On September 11, the Mortgage Bankers Association, along with the American Land Title Association, the National Association of Realtors, the National Association of Home Builders, and the Real Estate Service Providers Council, sent a letter to CFPB Director Kathy Kraninger ordering her to asked a Cordray 2015 bulletin on the matter is being withdrawn and "replaced by affirming that the real estate industry should follow long-established best practices under RESPA and related legislation".
It was the latest of several efforts in recent years to get the office to change its stance on MSAs, said Justin Wiseman, vice president and board of directors of the MBA.
"The removal of this bulletin for 2015 was the best that came out of it, even if it didn't change on a practical level," said Mitch Kider, chairman and managing partner of Weiner Brodsky Kider, who represented PHH Mortgage on a major challenge for CFPB MSA Compliance Authority. This bulletin, he said, does not rely on the law itself and deviates from a 2010 interpretation by the Department of Housing and Urban Development for MSAs.
"It is very helpful to the industry and gives them a clear message about what the Section 8-related issues are and how some of these issues can be analyzed, at least tentatively," said Kider of CFPB's recent post.
More importantly, "these FAQs will not enact new law," he added.
Those looking to enter into MSA agreements "are likely now relieved not to have to try to figure out how to structure a compliant MSA according to the 2015 Bulletin," said Wiseman.
This bulletin was not a compliance guide for lenders to use, but "a statement of concerns … only some of which actually related to MSAs," said Holly Spencer Bunting, partner at law firm Mayer Brown.
"Now we have FAQ guides in place that list RESPA's exceptions to MSAs that are in line with the PHH decision," she continued.
After the office published its bulletin in 2015, the mortgage industry complained that there were no clear guidelines on what was allowed. Many claimed the bureau was regulating through enforcement.
Most lenders ended all of the MSAs they had following the original decision by then-CFPB director Cordray to fined PHH109 million for an alleged violation.
The case of PHH was one of several that challenged the constitutionality of the CFPB structure. Although PHH declined to review by the Supreme Court on procedural grounds after winning an appeal. Even so, then-incumbent CFPB director Mick Mulvaney dropped the matter, saying PHH had not violated RESPA.
These new guidelines are in line with how the mortgage industry works after the PHH case, Bunting said.
"It's nice to get positive guidance from the agency as much of the guidance people rely on is still from HUD," she said, referring to the 2010 interpretation. "But it is ultimately changing nothing about how people do compliance. "
The CFPB FAQ will affect many beyond mortgage lenders. Other players such as title insurers and real estate agents, even home guarantee providers, have been checked for MSA compliance by the CFPB.
"This move underscores the need for title and execution professionals to be up to date as they analyze marketing service contracts," said Diane Tomb, ALTA CEO, in a statement. "Section 8 of RESPA can be confusing and unclear. We applaud the bureau's efforts to produce compliance materials that will help the industry resolve these issues with specific factual patterns."
A statement from NAR said the group had "long advocated clarity on MSAs and recognized the Bureau's recognition of the importance of RESPA enforcement in enhancing relationships between settlement providers".
In a blog post on the FAQ, the CFPB warned that it would continue to crack down on violations and promised vigorous enforcement.
"The office is very confident that they will enforce the rules as understood prior to the bulletin," said Wiseman, adding that the legal language of RESPA allows MSAs under certain regulatory contexts.
"The devil is really in the details when it comes to MSAs," said Bunting. "The FAQs are good pointers, but it's still not the level of detail you need to review an MSA with to make sure it's fully compliant."
There was another subtle difference in the CFPB's FAQ. Earlier guidance stated that MSAs are allowed between two companies, but not between one company and some participants. The new FAQ, which uses an MSA between a lender and an individual real estate agent as one of their sample complaints, notes Marx Sterbcow, a Louisiana-based mortgage compliance attorney.
"This kind of opens Pandora's box because they are now assuming their example that individual real estate agents can get MSAs out with lenders," he said. However, the enforcement bureau's explanation that agreements between lenders and agents or teams of agents are still dangerous was important.
However, this does not alleviate Sterbcow's concern that some might use this example to move the envelope and make arrangements with agents.
Sterbcow, who represents Townstone Financial against CFPB redlining allegations, added that the enforcement statement was positive as the Bureau had not followed many, if any, Section 8 throwbacks in recent years. In Rocket Cos. & # 39; Prospectus revealed a RESPA investigation into its Rocket Homes unit.
Depending on who wins the upcoming election, the interpretation, compliance and enforcement of Section 8 could change again, especially given the Supreme Court ruling earlier this year that the single director structure set out in the Dodd-Frank Act for the Invalidated CFPB.
As a result, a change in the White House is likely to result in the appointment of a new CFPB director with views similar to Cordray. And since FAQs are informal, they can be easily revised.
"Compliance needs to be at the highest level at this point because of the elections," said Sterbcow. If both the White House and Senate take control, the office will likely expand its enforcement efforts in all areas, not just the MSAs.