Federal consumer agency takes aim at pay-to-play mortgage referral services

As mortgage rates nearly doubled over the last year, some mortgage comparison shopping platforms have been taking advantage of homebuyers who turned to the services looking to save money, according to a federal agency.

The Consumer Financial Protection Bureau recently issued an advisory warning to consumers about what it called “double-dealing” by digital mortgage comparisonshopping platforms. They promise to provide objective lender comparisons, but may only be referring lenders who pay referral fees to the platform.

“When shoppers use a lender that is not the best option for their needs, they may end up with a lower-quality lender or paying thousands more in closing costs or interest,” the advisory said.

The average 30-year fixed mortgage rate closed out 2022 at 6.73% after starting the year at 3.22% in January. For a $300,000 mortgage, the difference in monthly payment is $1,301 at the lower rate versus $1,942.

The advisory from the Consumer Financial Protection Bureau also outlined how companies violate the Real Estate Settlement Procedures Act (RESPA) when they steer shoppers to lenders using pay-to-play tactics rather than providing shoppers with comprehensive and objective information.

“Given the rise in mortgage rates, it is even more important for homebuyers to shop and compare loan offers,” said CFPB Director Rohit Chopra in a statement. “We are working to ensure that online platforms are not manipulating their search results in order to coerce kickbacks from lenders.”

The Consumer Financial Protection Bureau said many of the websites and mobile apps that offer to find consumers the best deals on mortgages or other settlement services claim to provide a ranked list of providers suitable for the consumer’s needs.

The agency pointed out it is illegal for the companies to manipulate their platform’s “inputs” or formulas to generate comparison options that favor higher-paying or preferred providers. That might include, for example, designing a platform’s formula to steer shoppers to a provider in which the operator has a financial stake.

“In this case, the shopper is unaware that the platform’s formula was potentially designed to steer them away from non-preferred providers,” the CFPB said.

Under RESPA, it is illegal for companies and individuals — including digital comparison-shopping platforms — to receive kickbacks and referral fees in

connection with a transaction involving a residential mortgage or other real estate settlement service, according to the Consumer Financial Protection Bureau.

The federal agency said in a statement that eliminating kickback schemes fosters fair competition by forcing lenders and other providers to compete on a level playing field and it leads to lower rates and higher-quality service.

The advisory opinion “seeks to assist law-abiding companies to comply with existing law,” the CFPB said. “It does not create any new requirements, but rather offers clarity on how firms can navigate issues associated with digital mortgage comparison-shopping platforms.”

For more information on mortgages and home buying tools, visit the CFPB website at consumerfinance.gov.