CFPB is changing the game.

Yet again… And for MSA’s BIG TIME.  I think this will affect Builder’s BIG TIME, right as the ground softens.  Winter’s not over, but a cold front just waved through.  And if you didn’t know, I’m referring to the most irritating, hardest objection to get around if your an originator.  It’s when Builders give incentives to have a client go through “their” preferred lender or forfeit certain incentives. TOTALLY STEERING.

Recently the CFPB slapped the wrist of yet another mortgage company.  And this time the Real Estate firms associated with the “deal” get slapped too.  And it’s all because the RE listing suggests that a certain lenders pre-approval is preferred and had kickbacks or marketing “budget” that was moved around monthly.  Let me ask you originators, have you ever come across a lead and the prospect says their shopping compared to a “builders lender”?  Every LO’s face just cringed.  It’s the worst, and as an LO even if you offer a better rate or lower costs, if that prospect uses you, they lose out on certain “upgrades”.  And benefits for their builder deal.  I’ve seen it time and time again.

Well the CFBP is sending a crystal clear message with this case.  And I bet, mark my word that some builder that steers clients to a certain “lender” or they forfeit certain benefits, will be going down next.  Big time.  It’s the worst thing an LO hears, they already know they can’t win against the builder’s lender and feel trapped.  For years this has been the case.  This summer might be a different story.  The kickback or benefits of using preferred lenders in some Marketing Service Agreement (MSA) will be a no no going forward.  Wait that was the way it was designed in RESPA years ago…. Oh, yeah, people are still trying to find holes or cracks to slide through… I also think more of the public eye and consumers as a whole (even RE and LO’s) are reporting these kind of practices that make for an unfair advantage.  Heard that’s how this happened, a competitor of the mortgage company snitched on them.  Good.  I think the CFBP has got it right on the preferred MSA’s out there and how they are wrong.  But I don’t see anyone bring up the builders benefit aspect.

In my opinion as long as the LO and RE agents are diversifying themselves and not doing all their business with one person, then they should be ok.  Never make it even look like your steering loans to one place.  The old saying, never have all your eggs in one basket right.  Just don’t put something on the NMLS listing that says all offers must be pre-approved by XYZ bank.  Or from an LO perspective never advertise conjointly with a RE agent and have exchanges of value.  Keep things generic and or a representation of the company that sponsors you. This is a great move technically and in turn helps the consumers and level’s the playing field.  No one person or lender is “preferred” or should be advertised that way in my opinion.  All approvals or pre-approvals are taken at face value of what they are, and lenders are expected to perform if they issue it.  I think it’s a win win to have this, and really  this kind of action was needed more than 5 years ago.

Builders are the worst in offering incentives and or taking them away if that “preferred partnership” is not used.  As far as RE agents go I don’t see someone saying they won’t show a house to someone, or they won’t accept an offer if not using that preferred party.  I am not a RE agent and don’t know how they could “take away a benefit” if that lender was not used.  However if they place it in a written ad on NMLS stating all pre-approval’s need to be through XYZ Mortgage Co.  Well then you have steering.  Stay away from that is my suggestion.  Still builders are and have been the worst at this.  And I think this new message could have lasting affects with not just kickbacks, but the taking away benefits to a client for not using a “preferred lender” they have a MSA with..  And for the better.

We’ll see this summer.  Everyone should be on the look out for a builder that says use my company or forfeit some aspect of potential gain on the building of the clients new house…. I hope builders get the message and it spreads.  That’s a new no no.  Well there you have it. The CFPB is changing the game again.  Nobody is preferred, or compensated for steering loans towards a certain lender partner.  Makes sense.  Clear cut and dry.  Message and Law has been around for a while (RESPA).  Why are people still trying to cut corners is what I ask myself…

AS A RESULT. What I see is opportunity.  If I was originating loans, I would be using this as education for those builders that “have a MSA” or preferred lender and educate them.  Partner with them NOW, and offer to be a balance to their portfolio.  The last thing a builder should want is a track record of having all their closings with one entity.   (hardly any LO’s network with builders)…. This is key.  And wide open for the taking.  That’s cause they all had “their lender” they steer clients too.  And LO’s know this.  All you need to do is start adding value to them by education on this.  New “partnerships” are about to be born, hopefully with no MSA attached.  lol.  No one should be preferred any more.  My suggestion, stay away from even the looks of steering.  RE agents you should network with at least 3 LO’s from different companies.  LO’s you should network with 30 RE agents. 🙂  And builders you should have at least 3 lenders you can recommend.  No one person/lender from RE to Builders should be “preferred” and no benefits taken away if those partnerships are not used.  It’s not fair to the consumer.

Happy Origination’s

Happy Builder partnering

-The Mortgage Juiceman

 

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