Is your real estate agent being paid hundreds or thousands of dollars by a mortgage lender for helping you fill out an application for a loan that the lender subsequently funds?
Are agents selling your name and e-mail address to a lender who then pitches mortgages to you as you shop for a house?
Should you care if the answer to either question is yes?
Federal officials investigating a fast-spreading wave of realty agent compensation programs run by new Internet-based lenders say you should be concerned because you could end up paying more for your home loan than you need to. Though little known or understood by the general public, the programs are active nationwide and already involve thousands of agents.
Officials at the Department of Housing and Urban Development confirm that they are examining the marketing practices of a growing number of Internet lenders for possible violations of the federal anti-kickback statute. Under the law--the Real Estate Settlement Procedures Act (RESPA)--realty agents and other professionals are prohibited from receiving compensation simply for steering home buyers to lenders. Under guidelines issued by HUD in March, agents and brokers may receive fees for performing loan-origination work on a lender's behalf, such as taking loan application data, ordering credit reports, title searches, appraisals and the like. But the fees must be "reasonably related to the value" of the services performed, and the amount of the compensation cannot be justified by the inherent value of the business referral itself.
HUD has never set dollar limits on compensation, but in one case concluded that $200 payments for loan-origination services did not constitute an illegal kickback. But now some Internet-based lenders are pushing the envelope by offering realty agents 1 percent or even 2 percent of the loan amount--1 point to 2 points in fees--for basic origination services. One point on a $200,000 mortgage is $2,000, and represents tantalizing extra income to a realty agent.
One firm identified by several realty brokers and lawyers as aggressively marketing its compensation program across the country is REBLS Inc. of Salt Lake City. REBLS stands for Real Estate Brokers Lending Service Inc. On its World Wide Web site (www.REBLS.com), the company promises that it can boost agents' income--"up to 50 percent more profit per sale." The company says that "under specific guidelines, real estate professionals can earn 100 percent of the loan origination fee"--generally 1 point--for every loan they send to REBLS.
The company also claims that it presented its agent-compensation plans to RESPA oversight officials and "the review was completed and approved by mid-year 1997." Real Estate Brokers Lending Service "is the only company to date that has requested and completed a full process review from RESPA for this new type of mortgage business," according to its Web site.
HUD officials would not comment on REBLS's claim but issued a statement saying, "It is HUD's practice to offer general guidance on the interpretation of its RESPA regulations. It would be misleading for any company to suggest that it has received HUD's official approval or endorsement under RESPA."
In a telephone interview a REBLS loan origination official, Jason Hinds, said the company has already signed up 5,000 real estate agents around the country, is doing business in all but a handful of states, and is growing fast. The firm's next step will be to sign up home builders, remodeling contractors and local loan brokers as originators.
Hinds added that although the typical fee earned by participants is "1 percent or lower," what an agent earns per loan "is up to you [the agent]. It depends on what you want" for the package of services rendered, and could be 2 points in some cases. Hinds said the company was confident that it meets all federal statutory requirements because it spent "millions of dollars" in legal fees while structuring its program.
Another example of the new fee-oriented marketing efforts by Internet lenders to reward agents for their assistance in bringing in home mortgage business is a California-based firm called Loanz.com. The company pays agents "$50 for every lead" that agents supply. Each "lead" consists of the name, phone number or e-mail address of prospective home buyers who also authorize Loanz.com to check their credit at a cost to the customer of $17.50. With the name, e-mail and credit report in hand, Loanz.com then pitches a variety of its mortgage offerings to the home buyers.
A loan official at the company said real estate agents "do not necessarily have to disclose" the existence or amount of the fees they receive to their customers. He added that the "lead" payments are in full compliance with RESPA.
The bottom line of all this for you? Ask your real estate agent: Are you getting paid for passing along any information about me to a lender?
If the answer is yes, shop aggressively for your loan on your own. You just might do better.