Every single time I think the real estate industry is moving forward, gaining a bit of trust in the eyes of the public, some nincompoop screws it up.
Saturday afternoon. My clients and I stop by an open house. Being the polite dude that I am, I let my clients enter the home first.
Standing by the door is an agent. He is easy to spot. The name tag is a dead giveaway. Next to him is another person wearing a suit. This would be the lender who is working the open house with him.
Granted, I didn’t look like a real estate agent. After being repeatedly told by a few clients, I abandoned the dress shirts and ties. Casual is my modus operandi. And I definitely don’t wear a name tag.
I introduce myself and my clients to the agent.
He goes into his schtick about the house. I ask if he is the listing agent. He is.
“So if we make an offer, you’ll be the one to receive it?” my client asked.
“Yes,” the agent replies. “But first, you need to qualify with our preferred lender. It’s a requirement of the seller.”
My client snaps back, “Why? Are you getting a kick-back?”
I burst out laughing.
I love my clients. I’ve trained them well.
Way, way back in ancient times, circa 1974, Congress passed a law called The “Real Estate Settlement Procedures Act”. Or RESPA. It’s purpose is simple. To protect anyone who is getting a loan to buy a home.
Lender can’t hide anything from you. The true interest rate. The required down payment. Any terms. Any conditions. The color of their socks. Everything must be disclosed.
Do you know what RESPA made illegal? Kick-backs. If I refer some clients to a lender, it is illegal for that lender to pay me for those referrals.
So guess what the Unethicals did now?
Inman news, the premiere real estate news source, emailed me this:
“The Consumer Financial Protection Bureau (CFPB) has fined two real estate brokerages and two mortgage lenders and for what the federal agency says was an “illegal kickback scheme” in which one of the lenders allegedly paid for mortgage business referrals, in violation of federal law.”
Just when I think the Unethicals can’t sink any lower…
What was the fine? Nearly $4 million dollars.
What did they do? I’m glad you asked.
Prospect Mortgage, the lender listed in the article, made an agreement with the brokerages. New clients had to be qualified with Prospect before they could put down an offer on a house.
Lenders know that 50% of people will not shop around for a loan. They will go with the first lender they speak with. In this case, someone wanting to buy a home reaches out to an unethical agent. The agent steers them to Prospect Mortgage. Prospect pays the agent. Do this with a few brokerages, each having 50 or 100 agents, over a period of years, the deals stack up rather quickly.
How many is a few brokerages?
According to the article “The CFPB indicated that more than 100 real estate brokers had agreements with Prospect to obtain illegal payments for referrals.”
Sweet Moses smell the roses.
How does this impact the home buyer?
Prospect could do little things. Like bump up the interest rate just a smidgen. Tack on an extra fee. Or bump up a fee. Because 50% of people won’t shop for another loan.
What if the client already had a lender? Too bad. The client can’t put down an offer until they get pre-qualified with Prospect Mortgage.
I’m a believer in the free market. I believe that when businesses have to compete the consumer wins. The consumer gets the best deal, the best package, the lowest rate, etc.
When I first became an agent, my first goal was to find reputable, competent loan officers to work with.
To earn my referral, the loan officer has to do two things. First: they must be a straight shooter. If I catch a whiff that they are lying to me or my clients, they’re out. Second: they have to be a problem solver. Sometimes issues come up during escrow and they have to get them resolved.
Beyond that, it’s up to the lender to compete with everyone else to make sure they are offering the best package to the client.
And truth be told, a small part of the blame for this must fall on the home buyer. Homebuyers should always speak to more than one lender just to ensure they’re getting a good deal. Always ask questions. Get a second opinion.
No one can tell a homebuyer which lender they MUST use. That choice is up to them.