Are you a mortgage lender looking into entering a marketing services agreement with a real estate brokerage firm? Or you might be a real estate brokerage firm looking to enter into a marketing services arrangement with a mortgage banking firm. In either event, both companies know that they can’t pay the other company for the referral of business due to the anti-kickback provisions listed in Section 8 of the Real Estate Settlement Procedures Act (“RESPA”). But mortgage lenders can pay real estate brokers for valuable services related to advertising the lender’s services to consumers served in the community by the mortgage banking firm.
We can all learn how to set up a Marketing Services Agreement properly so that we stay out of trouble with regulators and avoid lawsuits. Let’s ask some questions and provide some answers about Marketing Services Agreements (“MSAs”).
1) Why do we do marketing services agreements?
Answer: RESPA prevents mortgage lenders from paying real estate firms for the referral of clients. But the law permits validly set up and properly maintained marketing services agreements where the lender pays the real estate firm for performing certain defined advertising services for the benefit of the mortgage lender.
2) What do I need to do to make sure I am doing them properly?
Answer: Both parties need a defined marketing services program that is based on various policies, procedures, review, and confirmation that specific services bargained for were in fact provided in a documented and confirmed manner. You also will want to identify and define the specific advertising services that your company permits in these arrangements. It’s the lack of a defined program that often leads to companies entering into marketing services agreements with risky terms that likely should not have been entered into by the parties.
3) Do I need to do economic analysis?
Answer: Yes, it is important that the mortgage lender pay the realty firm the reasonable value of the services provided for each service contracted for. Most mortgage banking firms will hire a third party to perform this economic valuation. There’s some good reputable firms out there that perform these services and it will be important to work closely with these firms to be sure that a proper economic evaluation was performed for each advertising services to which the parties will agree in their MSAs.
4) Can I enter into a MSA with any type of business person?
Answer: This is a judgment call/ Typically you will want to enter into an MSA with a real estate brokerage firm or possibly a home builder. Remember that our focus here is identifying firms that we would want to spend advertising dollars with to reach out to consumers who need mortgage financing for their home purchase.
5) How do I know I am not paying too much for a service?
Answer: Again, get an economic valuation done by a reputable firm that understands this business and have them value each service that will be listed in your MSA. Always pay less than the valued amount for each service to be on the safe side.
6) What services can I contract for with the real estate firm?
Answer: We have seen website advertisements, email blasts, signage at the realty firms, and hourly consulting services as some examples.
7) What controls do I need to ensure my MSA process is compliant?
Answer: We recommend that you perform a monthly review of your MSA and obtain proof that all services contracted for were indeed performed as agreed.