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Feds issue warning to mortgage industry about kickbacks that drive up costs for home buyers

Money HouseIt’s possible that home buyers could spend hundreds or even thousands of extra dollars at closing because of referrals agreements made by real estate brokers, mortgage lenders, and title companies.

These agreements are called “marketing services agreements,” and the Consumer Financial Protection Bureau has issued a warning it plans to take action to limit their widespread use.

Use of mortgage kickbacks and referral fees is a violation of federal law.

“We are deeply concerned about how marketing services agreements are undermining important consumer protections against kickbacks,” said Richard Cordray, director of the bureau. “Companies do not seem to be recognizing the extent of the risks posed by implementing and monitoring these agreements within the bounds of the law.”

The bureau enforces the Real Estate Settlement Procedures Act, which prohibits kickbacks or referral fees that tend to increase the costs of settlement services. The law covers services that are part of a real estate settlement, such as title insurance, appraisals, inspections, and loan origination.

While marketing services agreements are usually described as payments for advertising or promotional services, in some cases the payments are actually hidden payments for referrals. Agreements that include trading something of value for referrals of settlement service business likely violates federal law, regardless of whether a marketing services agreement is part of the transaction, the bureau said in a bulletin.

For example, the bureau found a title insurance company that entered into agreements where the fees paid by the company were based on the number of referrals it received and the revenue generated by those referrals.

In another case, a settlement service provider didn’t disclose its affiliate relationship with an appraisal management company and didn’t tell consumers that they had the option of shopping for services before directing them to the affiliate.

So far, the bureau’s has fined companies and individuals $75 million for RESPA violations. Most of the violations have been for improper kickbacks and referral fees.

The bureau plans to continue actively scrutinizing the use of such agreements as part of its enforcement and supervision work, according to the bulletin.

Copyright 2015, Rita R. Robison, Consumer Specialist


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