|Copyright 2011 First National Compliance Solutions Inc.
Compliance Solutions Inc.
The Bead on Lead Generators
Know how to keep compliant when working with lead generators
Jonathan Pinard, president; and Bonnie Nachamie, CEO,
First National Compliance Solutions Inc.
As published in Scotsman Guide's Residential Edition, August 2013.
Purchasing leads has become an integral part of the mortgage business in the
past 15 years. Advances in technology have opened the door to new ways of
reaching potential borrowers, and there are now a multitude of lead-
generation companies offering leads found in a variety of ways.
You should know, however, that some methods used to generate leads may
require the generating company to be licensed as a mortgage broker or
lender. Licensing requirements vary state by state, but many states’
regulations cite the solicitation of mortgage-loan applications or the act of
offering to solicit mortgage-loan applications for compensation as triggers for
One example of lead generation that may require licensing is when a person
visits a website that offers rate quotes from a lender — or multiple lenders —
and asks the potential borrower to complete a short online application. If that
application culminates in the lead generator transmitting it to a lender or
broker and receiving a fee, an argument easily could be made that the
transaction enters into the realm of a licensed activity.
How does the above transaction differ from online advertising? It’s different
because, in general, advertising should be thought of as a passive activity. An
online publication may display a lender’s interest rates or message, and they
even may include a way for borrowers to contact the lender directly. This
would mirror the activity that’s done in print advertising and doesn’t require
Several of the nation’s largest lead generators are licensed in most states, and
some even are registered with the National Mortgage Licensing System
(NMLS). Although this is not conclusive evidence that licensing is required in
one state or another, it’s important to note that industry leaders would not
expend time, money and effort to receive licensing without reason to do so.
Why would it matter to you or your company if a lead generator is licensed?
After all, you’re not the one doing the improper soliciting. It should be noted,
however, that most states require you to avoid doing business with entities
that you know or should have known needed to be licensed. The Consumer
Financial Protection Bureau requires that lenders and brokers have a third-
party vendor monitoring program to make sure that they’re not doing
business with entities that are violating the law. In 2011, the Department of
Housing and Urban Development issued a mortgagee letter that states,
“Approved mortgagees must include a process for reviewing all
advertisements generated by or on behalf of their company for compliance
with Departmental advertising requirements as part of their Quality Control
With all of this in mind, how can you protect yourself and your company from
violating the law? Draft a policy, the length of which will depend on the size of
your company. Include steps to ascertain the way in which the leads that you’
re purchasing are being generated. Ask the company that’s selling the leads if
they’re licensed and confirm that licensing through the NMLS.
If they’re not licensed — or even if they are — find out how they’re generating
their leads to determine if their marketing activities are meeting federal and
state requirements. If you’re not sure, contact a compliance expert or your
state regulator. In addition, you should pay attention to the Federal Trade
Commission’s rule that prohibits unfair or deceptive acts or practices in
mortgage advertising. Additional information can be found online at sctsm.
Jonathan Pinard is president and Bonnie Nachamie is chief executive officer
of First National Compliance Solutions Inc. in Merrick, N.Y. Reach Pinard at
(800) 400-4134 or email@example.com. Reach Nachamie at (800)
400-4134 or firstname.lastname@example.org.