Your protections will vanish if mortgage police go away


Talk about working fast.

Since he came to office, President Trump has already signed two executive orders that may be the start of rolling back or eliminating the Dodd Frank Consumer Protection Law and the Consumer Financial Protection Bureau, or CFPB.

And, U.S. Sen. Ted Cruz recently introduced a bill to abolish the CFPB.

Big mistakes!

Biggest losers will be home buying mortgage shoppers and eventually entire communities due to the cascading effect.

Timing could not be worse. High home prices being boosted further by sub-prime financing and minimal down payments. Didn’t this type of stuff bring us to our housing knees just nine short years ago?

Now, consumers are facing a separate challenge to successful homeownership. It involves illegal kickbacks (that sometimes are part of marketing servicing agreements) to realty companies for the referral of mortgage shoppers to mortgage lenders, a practice that’s widespread, according to syndicated Washington Post Writers Group columnist Kenneth Harney.

The kickback practice has received the attention of the CFPB that it desperately deserves. If the CFPB disappears, this growing trend may be our next Great Recession tipping point.

In January, the CFPB took action against Southern California-based Prospect Mortgage, citing its involvement of improper arrangements with over 100 real estate brokers.

Prospect agreed to pay a $3.5 million civil penalty, and two brokers – ReMax Gold Coast and Keller Williams Mid-Willamette – and a mortgage servicer were ordered to pay a combined $495,000.

One example was compensation for each mortgage borrower referral. Another practice was paying brokers to require buyers already prequalified with other lenders to prequalify again with Prospect. This is also known as cross-qualification.

The ReMax and Keller Williams announcement was the first CFPB enforcement action against real estate firms for kickbacks related to a marketing service agreement, according to Samuel Gilford, CFPB spokesman.

In my own experience, more than half of the large real estate offices that I’ve called over the past few years demanded that I agree to some type of marketing servicing agreement to get access to its agents and office meetings, or they refused access because they already had some type of exclusive affiliation or marketing servicing agreement.

In addition, about 20 percent of individual agents require that the loan officers pay for their marketing materials, continuing education, golf and the like to get exposure to their buyers.

The reason why this is harmful is that the unsuspecting borrower always ends up paying more for his or her home loan in rates and costs.

One other rarely mentioned point is collusion when it comes to affiliated companies or marketing service agreements. For example, a lender affiliated with a listing agent will send the loan file to an investor who denies the loan prior to closing. Buyer is in jeopardy of losing his good faith deposit. So, buyer agrees to another loan offer at a higher priced lender to both save the transaction and save his deposit.

America can’t afford the consequences if the CFPB is eliminated.

If you have questions or comments, please contact Jeff Lazerson by clicking here.

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Jeff Lazerson - Mortgage Columnist since 2011