2014 October Lender Audit and RESPA Violations

Marketing Services Agreements : Are You STILL Interested?

My recent articles have focused on the Consumer Financial Protection Bureau ("CFPB") and its role in investigating, enforcing and prosecution claims that the Real Estate Settlement Procedures Act ("RESPA") was violated. Even though the CFPB has taken over primary responsibility for enforcing RESPA, we cannot forget about the Department of Housing and Urban Development ("HUD), the original watchdog! The Office of the Inspector General ("OIG") for HUD has several responsibilities, some of which include auditing, evaluating and investigating various HUD programs.

On September 26, 2014 OIG audited Cornerstone Home Lending to determine whether Cornerstone was complying with HUD and Federal Housing Administration ("FHA") regulations when originating and underwriting FHA-insured residential mortgages, and whether Cornerstone had quality control measures in place to ensure compliance. One of the conclusions OIG reached was Cornerstone violated RESPA by entering marketing services agreements ("MSAs") with Realtors® for FHA mortgages.

According to HUD, under RESPA, no settlement service provider, including Realtors® can pay marketing fees in exchange for exclusive rights. Through the audit, HUD discovered that pursuant to the MSAs, Realtors® were required to:

  • Exclusively market Cornerstone mortgage and loan products
  • Exclusively distribute and display Cornerstone advertising materials (business cards, brochures, fliers, etc.)
  • Provide exclusive access to Cornerstone employees
  • Not offer similar opportunities to other mortgage lenders
  • Not lease space in the brokerage to other mortgage lenders

In exchange, Cornerstone paid monthly marketing fees at a stated $11,000.00 per month, though there were other documented payments that far exceeded this monthly 'fee'. Some of the MSAs referenced payments for 'desk space' or other rental arrangements; but in these instances, there never were any actual leases in place.

These facts are fairly egregious, and no one reading this should be surprised that HUD concluded that Cornerstone violated RESPA. The consequences of that finding will cause you to take notice. RESPA Section at provides in part, "No person shall give and no person shall receive..." a thing of value pursuant to an oral or written agreement. HUD determined the MSAs violated RESPA because Cornerstone paid, and the Realtors® received, a thing of value. HUD recommended that those responsible for enforcing RESPA "take appropriate administrative action, including possible disbarment, against [Realtors®] for the RESPA violations."

Do we have your attention?

It is important to understand that the Lighthouse Title Insurance Company decision was a consent agreement, and the Cornerstone audit resulted in recommendations. Neither proceeding is a determination by any court of law. However, both decisions give strong indications about how the CFPB and HUD view Marketing Services Agreements and the payments that are exchanged because of them.