Could regulators use licensing data on the new Closing Disclosure form to track the marketing activities of mortgage originators?
The fifth page of the form, part of the new integrated disclosures tied to the Truth in Lending and Real Estate Settlement Procedures acts, has a box that calls for the license numbers of the buyer's and seller's real estate agents plus the settlement service provider.
This is in addition to the lender and broker's Nationwide Mortgage Licensing System IDs, individual and corporate. That information is not required on the current HUD-1 closing document.
The primary reason for the NMLS information on the TRID-related disclosure form is to keep track of loan officers' activity as they move from company to company.
But regulators could use all this information to track the interactions among originators, real estate brokers and settlement agents for enforcement purposes, said Marx Sterbcow, a New Orleans attorney.
For example, if a loan officer who has a marketing services agreement with a real estate agent and the agent did 35 of 40 transactions with that loan officer, then "that doesn't appear to allow the borrower to shop around to me and I'm sure the [Consumer Financial Protection Bureau] will take the same premise on that," he declared.
Others are less certain that CFPB would go down that path, pointing out it is common for the same parties to work together on numerous deals.
Just looking at the information on the disclosure by itself someone could not really tell if there was payment for a referral, said Benjamin Olson, partner at Washington law firm of BuckleySandler and a former CFPB deputy assistant director in its office of regulations.
"So the fact that folks are working together I don't think in and of itself is evidence of wrongdoing," he said.
It is possible regulators could use the data to create an enforcement case, but it is not likely, said Marc Israel, president and chief counsel of MiT National Land Services, a New York title agency.
"If vendors are playing by the rules I do not think anyone should be concerned. CFPB may be looking for people violating rules, but I do not believe they will set people up and play 'Gotcha,'" Israel said.
Nor does he think the CFPB will use the Closing Disclosure data to track marketing relationships. That opinion does come with a caveat, however.
"The truth is, when you have information and everything is trackable, you could put a lot of pieces of the puzzle together," Israel continued.
The rules are changing and some market participants are going to have to make adjustments. "Do I think that somebody might get smacked by the CFPB? Yes I do think so," Israel said. "But I really think that people should just adapt to new rules, understand that we're regulated and play by the rules."
CFPB is "working towards allowing the consumer to take more control of the experience, of the transaction" through TRID and the elimination of marketing services agreements, declared Rajesh Bhat, CEO of San Francisco-based technology company Roostify.
In turn, it will open up the market and there should be more competition among service providers to garner referral business.
"MSAs in my opinion have somewhat jaundiced that dynamic because it creates perverse incentives," Bhat said. "They grease the wheel for lenders and real estate agents to work closely with each other and it's not clear always if that is in the best interests of the consumer."
Real estate sales people choose their partners because they want to get the deal done accurately and quickly, said Mark McElroy, CEO and president of Pavaso, a collaborative technology company located in Plano, Texas.
"What kind of agreement could there be that associated any of the three stakeholders — Realtor, lender, title — together that wouldn't suggest that they weren't being referred for one reason or another. That's the problem," he said.