CFPB cracks down on Kickback scheme disguised as MSA



This is fantastic! A lot of crooked real estate agencies (which is a frighteningly large percentage of them) lean in on lenders and require that lenders pay into what are known as Marketing Services Agreements (MSAs). Essentially they are supposed to be agreements where the lender and the real estate office split the costs of advertising and marketing. Think of those postcard mailing campaigns that you’ve glanced at and chucked into the recycling bin or open houses with banners, signs and swag. On its face it seems to make sense, two companies or two sales people go in together to generate business. Of course, in real life, things are rarely so easy.

See, there’s a very important law – RESPA, the Real Estate Settlement Procedures Act of 1974. The relevant part of RESPA is Section (a): the prohibition against kickbacks and unearned fees. This covers “referral” fees and “buying the business.” Essentially the law prohibits any one in the real estate industry from paying other parties for referrals or making payment for services rendered contingent on the closing of a real estate transaction (financing, sales, etc). So your real estate agent can’t get paid for sending you to his “preferred” lender. Ever since the law was passed and with every passing update, clarification and revision the real estate industry has tried to find ways to circumvent the law. MSAs and ABAs (affiliated business arrangements) have been the preferred vehicles for these extralegal gymnastics.

So what happens is that instead of obviously well-spirited advertising campaigns and events, companies set up relationships wherein, for example, a lender “leases” a desk at a real estate brokerage’s office. That lender pays well-above market rates for that “privilege,” say $2500/month for a desk and a chair. That lender, of course, expects something for his/her generosity. They want loans that they can close and make money. This isn’t in the spirit of serving the consumer mind you, this is about the $$$. The real estate office is seeking to either defray it’s rental expenses or generate a profit and the lender is seeking an easy path to deals. Now, paying above-market rent for a desk is questionable but not as questionable as the further perversion of these kinds of arrangements: varying the rent each month and making it dependent on how many deals were sent to the lender. Yes, this is very common. It is not what happened in the linked story but this kind of action gladdens me deeply since I am tired of being approached by crooked real estate agents to set up MSAs and hearing about how other, less scrupulous, lenders are “in-house” or “preferred” with a particular real estate office.

A Strange Tale from Edgar’s Archives

I was going through old emails and came across one detailing what is still the strangest experience I’d had working in this industry. This was sometime in September of 2004 when I was still a lowly loan officer assistant:


I just had the strangest experience of my career as a loan officer this morning. I don’t mean this in the sense that it is the strangest thing to date, but that it’s the strangest thing that will ever happen to me in this field. We had to verify that a client worked at a particular place and had been calling the business number the whole week. The strange thing is that either the phone would ring 20-25 times without an answer or it would be busy. Usually if it’s a made up number you get a fake voicemail or answering machine. Strange enough that, but wait till you hear what happened when we showed up:


J (another assistant) and I show up at what is obviously a sweatshop. There are large wrought iron gates that are very, very locked. No doorknobs either. We bang on the gates… a large hispanic woman wanders up and asks, rather rudely, what we want. She is wearing two shades of lipstick, one on the lower lip and the other on the upper lip. Only thing is, the one on the upper lip isn’t anywhere near being confined to just the upper lip… it is also all over both cheeks. I think I could do a better job applying makeup than that. She is obviously oblivious to her appearance. We are not. We ask to speak to the owner or manager. We have to negotiate with her for that privilege. We have to explain our situation and reveal our credentials. Finally she fetches what can only be described as the next act in the freak show that is this VOE (verification of employment). A tiny Asian woman comes to the door, yelling to her workers in the oddest Spanish I’ve ever had the dubious pleasure of hearing. She has what appears to be a garter or panties tied around her face. A red lacy piece of fabric is tied in a band all around her head, passing over her upper lip and just under her nose, it has a large flowery (and lacy) knot in back. It is obviously there on purpose. Question is… what purpose? She comes up to the door and demands (in English worse than her Spanish) to know what we want.


Now; keep in mind that we are talking through a wrought iron gate. We once again relate our story and flash our credentials. We tell her that the lender is going to call her number and that we need her to answer the phone and answer all the questions to the best of her ability. She nods her head vigorously, agreeing multiple times… “ok, ok, ok.” I think all is well and call the lender to give them the green light while she is walking away from us and towards the phone. A minute later the phone rings… The phone keeps on ringing, the owner/manager woman and her assistant stare at it. The look like ancient tribespeople seeing and hearing a phone for the first time. It is as if they have never encountered technology before. The phone rings about 10 times, they don’t answer. This despite the fact that J and I are jumping up and down, yelling at them to answer. We are also employing crude sign language that we hope would convey the idea that; “ANSWER THE BLINKING PHONE SO THAT WE CAN LEAVE THIS FREAKSHOW.” Our efforts are in vain.

The lender calls my cell phone asks what the heck is up. I tell her what happened and tell her to try again in a minute or two.

A minute goes by and the phone rings again. Once more with the jumping, yelling and signing. She finally answers. She talks for less than a minute and hangs up. This worries us because the VOE process should take longer than that…


I call the lender to see if she got what she needed. She is in stitches when I call… I have to wait 30 seconds for her to get her voice back from all the laughing. I ask her, “Did you get what you needed? Are we good to go?”


She replies, “I think so… not really sure. I don’t really know what just happened.” There’s more laughing. “That was the strangest call ever.”


To which my natural reaction, “You should see it from this end.”


More laughter… “Don’t worry it’ll get funded, talk to you later.”

She’s laughing as she hangs up.


I drive home shaking my head and wondering, “Who does that lady’s makeup?”

How NOT to Shop a Lender

Look, I understand that people want to shop around for a “good deal” and that I don’t have the lowest rates in the market. I deliver excellent service and solid advice and I like to think that I’m worth a little bit more than some nameless drone at some internet bank that doesn’t know what he is doing, doesn’t care about his client and will take 3 months to close a perfectly clean loan. Still, I recognize that it is natural for people to want to know their options and I encourage it. Frankly, comparing me to most other lenders makes me look good!

Normally this shopping process happens at the beginning of the process, before anyone has committed to anything. On a home purchase this normally happens during the pre-qualification process. Typically that means that by the time a buyer finds a home he likes and gets an offer accepted that buyer has settled on a lender (hopefully with my office). This is because once they are in contract the buyers have a deposit on the line and they will be spending money upfront for things like a home inspection and an appraisal.

There are some people that go off the reservation and go about “shopping” the wrong way… and end up hurting themselves because of promises made by a less-than-scrupulous lender. We have a situation like that in the office right now. We’ve been helping this borrower shop for a home for about six months now and he finally got an offer accepted at the beginning of December on the purchase of a short sale. In fact, our office was integral in getting the short sale approved! We got his loan approved very quickly. obtained an appraisal and then, at the beginning of this month, we produced final loan documents for him to sign and close his deal. Through out this whole time we spoke to him regularly and emailed him multiple times a week. Never did he tell us that he was also applying with a different lender. Now that we have documents ready to go and a lock about to expire (I feel it is important to mention that the loan is the exact terms we disclosed/discussed in November, so it’s not like we jacked up the rate or the costs) and we get a call from the listing agent that a new appraiser is trying to see the property. Turns out the other lender has been sitting around for a couple of weeks and is now trying to get the property looked at. The scheduled close is this Friday. The short sale approval is up this Friday. Our lock is up on Monday.

We call the borrower to find out what is going on. He doesn’t answer any calls. Emails to him go unanswered.

Now he is going to lose the sale, his deposit, what he paid for the appraisal, what he paid for the inspection and what he paid for the HOA cert. I think that’s about $6500.00. The sellers won’t grant him an extension since there are loan docs sitting at escrow ready to sign and a lender that performed exactly as promised.

All this could have been prevented if he had simply been straightforward with us. We would have bowed out gracefully and spent our time, energy and money on clients who want to work with us.

I don’t get it… why mislead us about this? I’m sure he expected honesty from us, why wouldn’t he return the same? Why not return our calls? Why not tell us directly?

California Mortgage Professionals: Join CAMP!

CAMP Logo Higher Res


I finally decided to join the California Association of Mortgage Professionals.

They sold me when they pointed out the obscene amount of money spent by the National Association of Realtors lobbying Legislators. They then correct pointed out that spending the second highest amount of bribes, I mean “political contributions,” resulted in absolutely no new legislation that affected the ability of Realtors to work or make a living. Compare that to the amount of money spent by the Loan Originators lobby. The National Association of Mortgage Bankers (with which CAMP is affiliated) isn’t even on the map when it comes to relative spending and look at how many changes have affected us in the last seven years.

At first I was sickened by how blatantly skewed our political system is by money. It is not ideals or a drive for the common good which guides our elected officials. It is the almighty dollar.

After recovering from my revulsion I realized that in order to play the game I had to get dirty just like everyone else…

Saturday Appointments, A.K.A. Russian Roulette

The word "SATURDAY" written in vintage wooden letterpress type.

So, I am available  by appointment on Saturdays. I realize that people’s weeks are busy and it is simply easier for some to meet on the weekend.

Every time I set one I cringe. Not because I am coming in on a Saturday. That isn’t a big deal. I cringe because I know that there is an even chance that I’ll be stood up. I’ve been burned in the past so I take steps to protect myself. I confirm the appointment the day before. I give them my cell number and ask that they please let me know if they can’t make it.

I’ll even call the morning of the appointment to confirm that they have the address/directions. I know that if they don’t answer or call back I’ll be sitting in the office waiting it out.

It boggles my mind.

The best times are when I have a 10am appointment and I hang around the office until about noon. I’ll get a call at 2pm because the client is outside my office wondering why the door is locked. When I tell them I waited two hours and they didn’t answer when I called; so I moved on with my day they get in a huff. It doesn’t matter because I don’t want to work with people like that but it still puzzles the heck out of me. What do they think I mean by “appointment only?” What happened to courtesy?

Well, let’s see what’s in the chamber today…

Loan Mods and other things that sound too good to be true…

Loan Modification.

Two words that have haunted my career since 2008.

When they first arrived on the scene they were flashy, like Pink in her Mercedes Benz. Everyone was abuzz and aflutter about getting to lower their payments without refinancing and despite being upside down on their mortgages. It seemed like a great way to help clients. The office I was in at the time signed up with a modification firm that allowed us to get a small fee for referring loan mod clients. The company was started and promoted by a very prominent name in the industry. A top salesperson who did training seminars and hosted weekly training calls. I’d been to this guy’s house for an industry mixer. He was smart, sharp and successful.

I did one. A cousin of one of my best clients (RIP, Charles) paid her fee to the company and I was happy to see the look of hope enter her eyes.

A month later, she was being ignored and she wasn’t getting help. I tried calling the company myself and no one would answer. I emailed the industry guy directly, he promised me he’d look into it. I didn’t hear back. I never got paid. I’d field calls from the client a few times a week that went from sad to hostile. When the hostility started they involved threats of level action at first and then it escalated to her “friends from the ‘hood” coming by my office. She didn’t believe I was never paid and that the company was ignoring my calls.

A few months later I started at the California Department of Real Estate as a Deputy Commissioner. First week there I over heard them talking about the company that I had referred this poor client to… I volunteered that I was familiar with the company and had a previous client who was victimized by what appeared to be loan mod fraud. I was interviewed and had to prepare my first statement for the state. I ended up going along to serve legal documents to the smart, sharp and successful guy. Turns out he wasn’t too smart, he called the state offices and left a very threatening voicemail for the deputy heading the case. Mr. Tops Salesman then got a visit from State Law Enforcement – they don’t take kindly to threats on public servants. It also turns out he was in business with the wrong guy. His business partner absconded with all the money and left a shell of a company that didn’t accomplish much for anyone but him.

Two years of loan mod cases were my penance for sending my client to the wolves.

I then moved to Freddie Mac. Shiny offices and a travel budget. I thought I had served out my sentence and been returned to civilization. I was wrong. Loan mod cases awaited me there. Cases with the same names I had seen while working for the state.  It was Sisyphean labor. No matter how many cases I closed, more appeared. There seemed no end to the ranks of people had, taken, gotten, defrauded, hoodwinked, swindled, victimized, bamboozled, beguiled, shafted and taken to the cleaners by a motley crew of realtors, lenders, attorneys, paralegals and other, less-credentialed, crooks.

You might ask why people would pay anyone when a borrower can simply apply for a modification directly from their bank. A valid question. An astute question, even. The answer, as is often the case, is a complex one that I’ll attempt to condense:

  • Banks don’t want to do loan mods. They require staff that needs training and pay. This staff wouldn’t be making the bank money… instead they’d be making it so that the banks would get less money from the assets they already had. The only reason a lot of banks did any mods at all is because the federal government had them by the proverbial short and curlies and browbeat them into offering mods.
  • Finance paperwork is complex. Many individuals are intimidated by having to complete applications and submit documentation. These folks saw loan mod firms as a convenience and a professional guiding hand.
  • Foreclosure was faster and cleaner for the banks’ balance sheets.
  • Government involvement. Once it came to light how dirty the loan mod system was new rules came in place. Rules came with enforcers, fees and compliance concerns. That meant more money for banks to spend on mods.
  • Low success rate. I don’t remember the exact statistics ( Here’s an article) but a lot of modified loans go belly up anyway. This is a topic that I could spend another hour on… but suffice to say that the institutional side of the industry did not have a lot of faith in loan mods.

Three years of this I endured. Finally, in my final year there, the flood seemed to finally flag. Could it be that I would be free of those two haunting words?

It is now 2014… I almost lost a deal a couple of months ago because a client had previously modified his loan. Turns out that a lot of banks won’t let you refinance a loan that you modified. That seems less than fair. You can buy another house two years after having a modified loan on your credit but it’s very difficult to refinanced the same house.

Today I received a call from a family member of a previous employee who was referred to me because she just got a loan modification that she feels she can’t afford. She is going to have to sell her home of 31 years.

When will it end?