When Is It Legal to Pay a Fee to Realtors®?
I recently received a phone call from a newbie loan officer - who has been in the business for about 90 days. He wanted to know if there was a less expensive way to get business from real estate agents - other than having to pay $1,000 per month toward their "desk fees".
Yet, another loan officer was paying thousands of dollars out of her own pocket by advertising real estate agent listings and using a call capture system to generate leads. This is only acceptable IF the real estate agent pays their proportionate share of the advertising expense. (If pictures of the homes take up 75% of the advertising space, they must pay 75% of the expense or you violate RESPA Section 8.)
World Savings paid HUD a settlement of $7,557 because they paid real estate agents $100 for nothing more than filing out and submitting on-line applications for prospective borrowers.
While HUD says that an agent may not be compensated for "merely" filing out an application, they have issued rules on when you CAN pay 3rd party referral fees without violating RESPA, Section 8.
In June 2002, HUD published a "Loan Origination Services List" outlining 14 services that a real estate agent (or 3rd party) can perform in order to earn a referral fee from a mortgage lender.
The mandatory completion of a 1003 (and not just the name, address, phone number and Social Security Number) is the initial requirement. In addition to completing the loan application, they must also perform an additional 5 items on the list - for a total of 6 services - to be compensated for their services.
For your free copy of the NAR White Paper Report entitled, "HUD's Guidelines: When a Mortgage Company May Pay a Fee to a Third Party for Loan Origination Work Without Violating RESPA," (regardless if you are a subscriber or not), fill out the following information, and a copy will be emailed to you.
Here is a list of the 14 items - and keep in mind that the completion of the 1003 is required to be one of the 6 services:
- Taking information from borrower and filling out application.
- Analyzing borrower's income and debt and pre-qualifying to determine maximum mortgage.
- Educating borrower in homebuyer and finance process - advising them about different types of loan products available...
- Collecting financial information...
- Ordering employment verifications...
- Ordering loan and mortgage verifications
- Ordering appraisals
- Ordering inspections or engineering reports...
- Providing disclosure statements to borrower...
- Assisting in clearing credit problems...
- Providing status of loan application and coordinating closings or gather additional information
- Ordering legal documents
- Ordering flood zone certifications
- Participating in the loan closing
For the exact wording, request a copy of the White Paper HERE.
It's important to note that the fees paid by the lender to the real estate agent must be in line with what you pay your processor or closer for the same type of work. If you pay your staff $15 per hour and you determine that based upon the 6 services they performed they spent a total of 6 hours, the fee to the real estate agent would be $90.
Of course, the other factor is whether you need to issue them a 1099 Form at the end of the year. I would suggest that you check with your accountant on this important issue. It's one thing to violate RESPA regs but quite another to deal with the IRS.
One last thought...if you have a real estate agent asking for "referral fees", give them a copy of this White Paper (issued by their own association) and ask them to tell you what services they are going to perform for the fees.
Here's to keeping the "mortgage" playing field level ~
Caution--Check Your State's Regulations Also!
An anonymous reader says:
Although payment to a Realtor might be legal under RESPA when they’ve performed certain work,
mortgage brokers may have to follow other laws as well. In Ohio, the Realtor would have to be (a) licensed as a mortgage loan officer with the State to receive any fee or to be permitted to do any work, (b) be an employee of the mortgage company, (c) the employer must do withholding, no 1099’s. The State raises further questions about supervision of Realtor “employees” vs. in-house employees and office hours maintained, and the State raises questions about the place(s) of business where business is performed. Many wholesale lenders object to tasks completed by third parties, especially by Realtors who are involved because of the real estate commission, prohibiting Realtors from verifying credit, income, cash.
With the largest incidences of fraud coming from loans generated where there are affiliated business arrangements, I think we’re going to see much closer scrutiny with these arrangements.
Copyright, 2005, LoanOfficerMagazine.com
Written By: Karen Deis