Realtor Discourages Use of Outside Lenders
Monday, November 5, 2007
The founder of Long & Foster, the Washington region's largest residential real estate brokerage, struck a nerve last week when he urged his thousands of agents to recommend the company's in-house mortgage lender more often and stop working with outside lenders such as Bank of America.
In an e-mail to all Long & Foster agents and managers, P. Wesley Foster Jr. chastised his workers for funding mortgages through Bank of America more than 2,200 times last year and through Wells Fargo instead of using Long & Foster's affiliate, Prosperity Mortgage. This comes at a time when home sales have slowed significantly.
"Neither of these companies do anything to support Long & Foster over its competitors, nor does SunTrust, Chevy Chase, or any of the other many lenders in your marketplace," Foster wrote in the e-mail sent Wednesday. "In fact Bank of America recommends other companies as their preferred realty firm over each of you right on their own Website."
The e-mail sparked criticism, with some Long & Foster agents, consumer activists and others raising concerns about whether Long & Foster executives are trying to profit at the expense of their clients' interests. The harshest reactions came from bank loan officers who could lose business if the agents listen. Critics say Foster is urging anti-competitive business practices that would limit consumer choices, which Foster denies.
"The Long & Foster directive will certainly result in many home-buying customers being pressured by their agents to purchase a Prosperity mortgage," said Stephen Brobeck, executive director of the Consumer Federation of America. "It will not serve the interests of their customer and may even erode the credibility of their agents."
One Long & Foster agent, who spoke on the condition of anonymity for fear of retribution, said she avoids using Prosperity because of the appearance of impropriety. The agent found the e-mail "troubling" because it implies that agents should strive to make the company more prosperous, even if it means undermining a client's interests.
"I'm thinking that some agents will feel psychic pressure to use only Prosperity Mortgage," the agent said. "I'm supposed to give my clients the best service, and that means helping them find the best loan."
In an interview, Foster defended the memo, which he said has been passed along to regulators at the Department of Housing and Urban Development by people who think "we've committed a sin."
HUD officials declined to comment about the memo, but spokesman Brian Sullivan said business relationships between brokerages and lenders are common, but cross the line into being illegal "if the agents or office managers receive kickbacks or fees for doing nothing more than referring services."
Foster said his company does not pay such fees for referrals to Prosperity, a joint venture between his company and Wells Fargo.
Foster said there's nothing wrong with suggesting that his agents use his mortgage company. "The agents know they can use whoever they wish," he said. "I would love everyone to go automatically to Prosperity, and I know we can't make them."
Foster said he wrote the memo to make agents understand that each time they use Prosperity, they're helping Long & Foster, which in turn enables the company to provide better resources and more advertising for agents.