Uncle Sam Targets Pay-to-Play

Bad actors reported by financial institutions seeking level playing field

BY LEW SICHELMAN, COLUMNIST, NATIONAL MORTGAGE PROFESSIONAL MAGAZINE

Nobody likes to be known as a snitch. But that’s what the small banks, credit unions and other lenders are when they complain to the feds about mortgage comparison platforms that don’t provide consumers with an accurate picture.

Well, they’re not exactly finks. Not in the true sense of the term. All they want is a level playing field — or, in this case, a fair program — where they can compete honestly with the big boys, the boys who have the dough to buy their way to the top of the list, whether or not they actually offer the lowest rates.

And so, they squeal to the Consumer Financial Protection Bureau (CFPB). Surprise. It’s not homebuyers and refinancers who blew the horn on pay-to-play sites. Indeed, most consumers will never realize when they’ve been hornswoggled. It’s other lenders looking for a fair shake. And the CFPB heard them. Loud and clear.

So much so that in February, the bureau issued a warning cloaked as an “advisory” to help law-abiding sites comply with the rules. Indeed, Director

Rohit Chopra said the CFPB “will not hesitate to act” if it finds any platform that promises unbiased opinions but actually sells top-of-the-list placement.

“We are working to ensure that online platforms are not manipulating their search results in order to coerce kickbacks from lenders,” Chopra said.

The CFPB calls the practice “doubledealing” and warns that it violates the Real Estate Settlement Procedures Act by guiding shoppers to lenders by using pay-to-play tactics rather than providing comprehensive and objective information. According to the advisory/warning, there are several ways consumer-facing comparative platforms and apps can run afoul of the law:

• Ensuring the “best match” goes to the highest bidder. Consumers often share criteria to find the best match, such as their desired location, loan amount, and credit score. The bureau explained that when a platform skews results to display the highest bidding participant, it misrepresents its promise of accuracy and objectivity.

• Ranking lenders by rotation. Purporting to rank lenders on a consumer’s input but actually displaying top lenders as part of a structure where lenders take turns in the top spot violates the law.

• Favoring an affiliate. Digital platform operators that promote an affiliate is not a fair representation, either. And a RESPA exemption related to affiliated business arrangements may not apply, the bureau said.

• Sending texts or emails favoring a lender. A platform that is paid to encourage a consumer to apply with a lender engages in promotional activity that undermines its neutral presentation, platforms produce results that are rigged ... Instead of being neutral referees, (they) extract illegal kickbacks to steer shoppers towards more expensive or lower quality lenders.”

The move to rein in manipulating digital mortgage comparison-shopping platforms is part of a broader, all-ofgovernment effort to end the illegal biasing of ostensibly neutral platforms.

As part of this effort, the CFPB also has taken steps to combat fake reviews on digital platforms. A year ago, it issued policy guidance that companies posting fake or positive reviews or falsifying customer ratings may be a violation of the Consumer Financial Protection Act.

The FTC, too, has advised companies that, if they use endorsements to deceive consumers, the consumer watchdog agency will be ready to hold them responsible “with every tool at its disposal.” In particular, it is looking at contractual “gag” clauses that attempt to silence consumers from posting an honest online review.

Beware Hijackers

according to the CFPB. Such activity influences the consumer’s selection and amounts to a referral, it explained.

• Offering to connect a consumer with a lender. Some platforms offer consumers a call or chat with a lender, known as a “warm handoff” or “live transfer” and amounts to a “promotional service that is distinct from the operators; comparison function.”

Beyond these examples, the Buckley law firm (now called Orick after its more recent merger with that firm) lists other possibilities. Among them: a “nonneutral” site could place a lower weight — or even exclude — criteria that would favor a lower-cost alternative. Or it could rank lenders by which one pays the highest fee. In some cases, lenders who don’t pay or pay the least could be shown in a smaller type font. They might even be left out altogether.

Whatever the scheme, the CFPB is having none of it. Said Chopra: “These

In mid-February, the agency came down on the Bountiful Co., makers of Nature’s Bounty vitamins and supplements, for “hijacking” a feature on Amazon to deceive consumers into thinking the firm’s latest products had more ratings and reviews and higher average ratings and earned such badges as No.1 Best Seller.

The case has nothing to do with the mortgage sector, except this is the kind of thing regulators are looking for. So, lenders, brokers, realty pros and everybody else in the housing food chain should take notice: Uncle Sam is on the prowl, protecting consumers in every way it can from unscrupulous behavior.

While we’re on the topic, I’d like to point out a couple of other shady practices that don’t appear to be on the Fed’s radar screens but perhaps should be. One involves buying leads from Zillow and other sites that aggregate listings from multiple listing services throughout the country; the other regards leads purchased from national and regional credit firms.

Unbeknownst to most consumers, when they click on a listing on an aggregator’s site, the name that often pops up on that property is not the listing agent. Rather, it’s from a rival who has paid the site to be linked to the listing, even though the agent likely knows nothing about the house in question. Or certainly has a lot less knowledge of it than the actual listing agent. He may not even be in the same general vicinity.

The other day, I noticed a nearby house for sale in which I had some interest, so I clicked on the “appointment” box, whereupon I was immediately asked when I would be ready to buy. I clicked right away. Within a few moments, the phone rang. After asking a few questions, the person on the line said she would connect me with a buyer’s agent.

(As used here, buyer’s agent is something of a misnomer. What they really mean is a buy-side agent who may or may not be working in the buyer’s best interest as opposed to a true buyer’s agent or broker, who never takes listings and solely and always works on behalf of buyers.)

That’s when I realized I didn’t have the listing agent. I had Zillow, which was ready to hand me off to someone other than the listing agent. When the lady confirmed my suspicions, I told her I wanted the lister and no one else. Politely, she gave me the agent’s name and number.

Then, within 15 minutes or so, I received a call from an agent who wanted to talk with me about the listing. But she wasn’t the listing agent, either. She had paid Zillow to be notified when someone inquired about a property in her marketing sphere. I had been passed off — and pissed off — anyway.

Never was I asked if I was working with an agent. Fortunately, I recognized what was going on, but most consumers aren’t as savvy. If they aren’t careful, they could be turned over to an agent with no experience, an agent who doesn’t know how to secure clients on his own, or one who is too lazy to do so.

Bad Leads Practices

Buying leads isn’t solely the province of realty agents, either. Lenders, loan officers, and others who touch real estate transactions in one way or another also plumb the market. It’s a form of churning known as “trigger leads.”

Every time a would-be borrower’s credit record is pulled by a lender, the credit agencies package that request with others as potential leads and peddle them to others based on the specific types of consumers that fit their lending parameters. The potential borrower has no clue this is happening until he is inundated with other loan offers, ostensibly so they can compare the poachers’ products against the original quote.

According to the National Credit Reporting Association (NCRA), some lenders who use trigger leads lie about how they know the borrower has applied for a mortgage, and some flaunt the rules by using deceptive practices to persuade the consumer to take a loan with their companies.

Even when the offers are on the upand-up, trigger leads are basically prescreened offers of credit, similar to the “pre-approved” credit card offers that fill your e-mail inboxes and snail-mail mail boxes. The National Association of Mortgage Brokers doesn’t like them, saying, “the act of applying for a mortgage should not be made public.”

NAMB believes contacting consumers during the application and approval process can be “harmful and confusing,” and opens the door to fraud, unfair and deceptive practices. Yet even though borrowers are clueless about what’s going on behind the curtains, Uncle Sam’s official position on the practice has been that it’s good for consumers because it promotes competition. n

Lew Sichelman is a contributing writer to National Mortgage Professional magazine. He has been covering the housing and mortgage sectors for 52 years. His syndicated column appears in major newspapers throughout the country.

BUILD A BROKER

Change Your Retention Rates

Make Emails Perfect ChatGPT Can Be Your Marketer

YOUR FIRST MILLION DOLLARS

The F Words Are Your Best Friends

BENCHMARKS & BEST PRACTICES

Learn Stress Management

CAREER TICKER

People On The Move

As the homebuying season picks up in the spring, so do mortgage payoffs.

It sounds alarming, but it’s expected — borrowers pay off mortgages when they buy new homes.

Loyalty is just not what it used to be. But should it concern mortgage originators that fewer than three in 10 customers will return to them for their next mortgage?

This year will be one of the worst to struggle with repeat business, which is the single best way to support originations. It also is the best way to grow a mortgage business long term.

A lost borrower can mean more than just one lost mortgage. Depending on the market, a lender that loses a borrower after a first home purchase could be missing out on three to five more originations during that borrower’s lifetime, making retention critical as market uncertainty continues to impact volume.

Mortgage originators should consider the net effect of lost mortgages as well. These missed loans have both a relationship cost and an opportunity cost. When prospective buyers go shopping for their next mortgages, it opens the door for other institutions to not only court them for all their lending needs, but competitors may turn one-time mortgages into lifelong customers.

SIMPLE DATA, VALUABLE APPLICATIONS

Earning repeat business from customers requires lenders to examine their offerings from the customers’ viewpoint. What are the needs of homebuyers? What kinds of support do they need? And how do you know which borrowers in your database need that help?

Technology is changing how lenders find and help customers from their databases using one simple, but important, piece of customer data: home addresses.

Lenders are now using automation to monitor the Multiple Listing Service for

Greater Influence On Referrals

Real estate agents are often the first point of contact for borrowers, and they usually control the referral to lenders they trust. Agent relationships are bread and butter players in the network of any good purchase loan originator. But what if an agent didn’t refer someone who worked with an originator before?

Lenders are beginning to catch nonreferrals through credit monitoring. Because price range is a key part of an agent’s search parameters, and price range usually is tied to mortgage payment and rate in the homebuyer’s mind. To gather that information, homebuyers shop lenders when they apply for credit. Lenders are using new technology available today to engage past borrowers, offer education and rate options, and regain their place as the borrowers’ goto in this step, whether it’s to purchase a home or to access home equity.

Serving Equitybased Borrowers

new home listings that overlap with past borrower addresses. Before, a lender only had indirect means to influence people to return for their next mortgages. Increasingly, marketers and loan officers know exactly who is listing their home for sale, what engagement should happen next, and who on the originator team should activate to help serve the potential homeowner’s specific needs.

Homeowners know the window is closing on the chance to use their equity for renovations, debt consolidation, or surprise expenses. This presents an opportunity for lenders to educate customers about their options and build trust.

“Tappable” equity, though, is always a moving target as home prices rise and fall. This makes segmenting borrowers who have enough equity to cash-out, or to obtain a line of credit, a perpetual, manual task. Often the work involved derails any marketing project to engage these borrowers with personalized messaging.

Lenders are now using automated tracking and engagement to overcome the practicalities of serving these segments. They also are becoming very tailored in their messaging. For example, people who’ve just sold or purchased a home spend four times as much as non-moving owners and twice as much as buyers of existing homes — on items such as appliances, furniture, and home improvements. Homeowners need to know that their lenders can help them finance these purchases, which presents another opportunity to educate.

The Key Is Data Transparency

Hundreds of mortgage originations are waiting in customers’ banking data. The ability to use that data to serve pressing financial needs will contribute to the performance of mortgage industry profit leaders in the coming years as we navigate an increasing rate environment.

For every 50,000 contacts monitored in a mortgage database, lenders discover nearly 1,250 additional mortgage opportunities per year, according to lender data gathered by Total Expert. That level of increase in loan originations can translate to nearly $13.8 million in revenue growth. At a time when every lead is critical, lenders must take advantage of these opportunities.

Technology can do much more than identify leads. It also can reduce overhead and marketing costs, something that financial institutions may need to consider in the coming years. Mortgage leads can cost upward of $1,000 per loan. For 200 new originations acquired by lending technology, most of that cost is saved. Those savings, multiplied across an entire contact database, can activate top-line growth and higher profitability.

With such significant opportunities in originations and profit growth, mortgage originators have a clear incentive to solve their retention challenges using new data-driven technology. And even bigger upsides await in relationships. When customers see their lenders working to educate them and to provide options that meet their needs, a deeper connection is created, and customers are more likely to turn to their lenders for future financial needs throughout their lifetime. n