RESPA 101: How Mortgage Marketers Can Stay Compliant

Today’s mortgage marketers don’t have it easy. Not only are they tasked with finding creative and unique ways to help their business stand out from the pack, they also operate in a strictly-regulated environment, where even seemingly minor and innocuous actions can trigger legal scrutiny. One of the most important regulations governing the mortgage industry is the Real Estate Settlement Procedures Act (RESPA). Understanding RESPA’s requirements is absolutely essential for staying compliant and avoiding costly penalties, especially within the context of promotional activities. To better understand how this can be safely achieved, let’s explore the basics of RESPA and how mortgage marketers can navigate this law to ensure their advertising efforts meet industry compliance standards.

What Is RESPA?

The Real Estate Settlement Procedures Act (RESPA) is a federal law enacted in 1974 to protect consumers during the homebuying process. Administered by the Consumer Financial Protection Bureau (CFPB), RESPA requires lender transparency regarding settlement costs, prevents abusive practices, and prohibits kickbacks or referral fees that increase the cost of home ownership. In essence, RESPA was created to ensure that consumers receive clear, accurate information about the real and total costs associated with obtaining a mortgage and that they are not subjected to unethical business practices by unscrupulous lenders or loan teams.

RESPA encompasses a wide range of mortgage activities, including loan servicing, title insurance, escrow accounts, and – perhaps most crucially for marketers – referral arrangements between settlement service providers. Violations of RESPA can lead to serious penalties, including fines and potential legal action, making compliance a top priority in the mortgage sphere.

RESPA and Marketing: What You Need to Know

Marketing in the mortgage industry can take many forms, but it often involves partnerships with various third parties, such as real estate agents, title companies, and other service providers. However, marketers must be cautious about how these relationships are structured, as RESPA imposes strict limitations on certain promotional activities. The law is particularly concerned with preventing hidden referral fees or incentives, which could drive up costs for consumers. This means that so-called “co-marketing” with third party partners must be carefully coordinated and monitored to adhere to regulatory compliance.

Key RESPA Requirements Affecting Marketing Efforts:

• Prohibition of Kickbacks and Referral Fees (Section 8): One of the cornerstone provisions of RESPA is an absolute ban on kickbacks and referral fees. Mortgage professionals cannot give or receive anything of value in exchange for referring business to another settlement service provider. For example, if a mortgage lender pays a real estate agent to send clients their way, this is a blatant RESPA violation and subject to serious penalty.
• Affiliated Business Arrangements (AfBAs): While RESPA does allow certain business arrangements between settlement service providers, these agreements must be transparently disclosed to the consumer, and the consumer cannot be required to use the affiliated service provider, or placed under undue pressure to utilize said partnership. Failure to do so is considered to be unlawful collusion and another violation under RESPA.
• Advertising and Co-Marketing Activities: RESPA allows lenders and real estate agents to engage in co-marketing, such as joint advertisements. However, the costs associated with such marketing efforts must be split proportionately based on the level of participation. For example, if a real estate agent and a lender create a joint ad, each party must pay their fair share of the costs. A disproportionate financial contribution by one party may be considered a disguised referral fee.

Key RESPA Compliance Considerations for Mortgage Marketers

Much of the above information may seem like common sense, but how does RESPA’s regulatory boundaries translate specifically to advertising efforts? To help marketers stay compliant with RESPA, let’s dive into some specific activities that could put a company at risk and how to avoid potential pitfalls:

1. Joint Advertising and Co-Marketing

As noted earlier, joint advertising between mortgage lenders and other professionals, such as real estate agents, is allowed under RESPA, but requires careful attention. The CFPB has been increasingly scrutinizing such arrangements, especially when it comes to shared costs. Mortgage marketers should carefully and thoroughly document any co-marketing agreements and ensure that the financial contribution reflects each party's participation.

For example, if a lender pays for 80% of a joint advertisement while the real estate agent covers only 20%, and the ad primarily promotes the lender's services, this imbalance could still raise red flags, even though the advertisement is (rightly) weighted towards the lender. To avoid penalties, marketers should document the reasoning and proof for the disproportionality and ensure that payment aligns with the level of exposure each party receives in the promotion.

2. Social Media Contests and Giveaways

Social media has become a powerful tool for mortgage marketers, but it’s also a minefield for RESPA violations. Contests, giveaways, or sweepstakes that incentivize consumer participation or lead generation must be carefully designed and worded to avoid triggering RESPA violations. Offering cash or high-value prizes in exchange for referrals or leads is a strategy at high risk of being construed as an illegal referral fee.

Should mortgage marketers utilize contests or giveaways, they should ensure that said contests are open to all participants and that the selection process is based on chance, not on the referral of potential clients or settlement services. This distinction is crucial for maintaining correct compliance.

3. Partnerships and Lead Generation

Third-party lead generation is another area where RESPA scrutiny is high. Mortgage professionals must be extremely wary when deciding whether to work with lead generation companies that charge based on the number of leads they refer to lenders. If these fees are tied directly to the referral of business, they could be cited as illegal referral fees under RESPA. Mortgage marketers should structure any lead generation partnerships carefully, ensuring that compensation is based on legitimate marketing services rather than referred lead volume.

4. Transparency in Disclosures

Clear and accurate disclosures are fundamental to RESPA compliance. If a mortgage professional engages in an affiliated business arrangement or offers a product or service with a third party, full disclosure must be provided to the consumer. Consumers need to be informed of any business relationships that could potentially benefit the mortgage company. Importantly, the consumer must also be informed that they are not required to use the affiliated service provider.

Mortgage marketers should work closely with their compliance teams to ensure all marketing materials include the necessary disclosures, particularly when promoting partnerships with other service providers.

How to Stay RESPA-Compliant in Your Marketing Strategy

With so many conditions to navigate, RESPA may appear to some as a draconian rule whose boundaries are nearly impossible to work within. The reality is that advertising in a fair, transparent, and unbiased manner will put you well on your way to complying fully with RESPA. To safeguard against possible RESPA violations, marketers can integrate the following best practices into their strategies:

• Work with Legal and Compliance Teams: Before launching any marketing or promotional campaign, mortgage marketers should consult with their legal or compliance team to ensure the plan adheres to RESPA guidelines. This step can prevent costly mistakes before a faulty strategy ever gets off the ground and contribute to protecting the company’s reputation.
• Document Everything: Documentation is key in RESPA compliance. Marketers should keep detailed records of all co-marketing agreements, lead generation partnerships, and promotional activities. If an enforcement action ever arises, having clear documentation that proves a lender’s good faith can help demonstrate compliance.
• Audit Marketing Activities Regularly: Regular internal audits of marketing activities can help identify potential RESPA violations before they become a worrisome pattern. Mortgage companies should routinely review how marketing costs are shared in co-marketing agreements, assess its business partnerships for non-compliance, and verify that disclosures are being handled properly.
• Use RESPA-Compliance Software: Several technology solutions, such as compliance software, can help mortgage marketers ensure their advertising efforts are meeting RESPA requirements by analyzing language and strategy against the current rules on the books. The regulatory landscape is always evolving and compliance software can confirm that lender guidelines are keeping up with legal updates. These platforms can also automate tasks like tracking co-marketing contributions and generating proper disclosures.

Conclusion

The Real Estate Settlement Procedures Act is a critical piece of legislation for mortgage professionals, especially those involved in marketing. There is no ‘day off’ for marketers when it comes to RESPA and other industry regulations – every billboard, social media post, commercial, print ad, radio ad, etc. must fully comply with RESPA and its tenets. By understanding RESPA’s requirements and implementing strict compliance measures, mortgage marketers can protect their companies from enforcement actions while maintaining the trust of their clients.

Staying RESPA-compliant isn’t just about avoiding penalties – it’s about fostering transparency and trust in the mortgage industry. As the CFPB ramps up its scrutiny of mortgage marketing language and strategy, it is imperative that mortgage marketers to take a close look at their advertising efforts and ensure they remain on the right side of the law.