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Monday, April 15, 2013

On-site mortgage services: A popular, but risky trend for Realtors

Mortgage companies are allowed to have an on-site loan officer
It is illegal for real estate agents to "steer" clients to specific lenders

By Geoff Lee
Mortgage brokers and real estate agents have long worked closely together, but the alliance has grown stronger since the housing market crashed and banks imposed tougher lending rules. Many real estate offices now include on-site loan officers. If you are thinking about following the trend, here are two caveats to consider:

1. Illegal steering

Under federal law, real estate agents cannot steer buyers toward a particular lender. To do so is a violation of the Real Estate Settlement Procedures Act, which forbids both steering and kickbacks for referrals. And penalties can be steep.
There is no law against having an on-site loan officer at your real estate company, but any appearance of impropriety will be more closely reviewed.
Weichert Realtors is among the large real estate companies that offer a "gold service" to clients, "a one-stop shopping experience because it is something that the consumer wants," Stephen Adamo, president of Weichert Financial Services, said in an interview with TheNew York Times. Adamo told The New York Times that buyers can choose whatever mortgage company they choose, which may keep the company out of legal trouble. But if a client were to issue a steering charge against a real estate company, it would be harder to claim disassociation when it provides in-house services.
Raymond Knox, a mortgage broker who writes a blog for Trulia, claims that the mortgage steering act is the most violated law in the real estate industry. This could change as federal regulators are taking a hard line against violators. During the first week of April, four private mortgage companies were hit with fines of $15.4 million and the lenders could face additional penalties, according to an April 4 article in the LosAngeles Times.

2. Company reputation

The fines were imposed on lenders, not real estate companies and did not relate to on-site mortgage arrangements.
So, if you decide to offer onsite mortgage services at your real estate firm -- and keep your relationship strictly within RESPA guidelines, you may be able to enjoy the benefits without putting yourself in legal jeopardy.
But there is another risk to consider: your company's reputation. Imagine the negative fallout if an on-site mortgage broker became embroiled in controversy or legal trouble. Even if the problems were not related to your firm in any way, you may suffer a public relations disaster. The presence or a mortgage broker acts, at minimum, as a testimonial for the lender. So, choose lenders carefully.

About the author: For over 22 years, the team at Geoff Lee Mortgage Group has helped with many US investors looking to secure Vancouver mortgages for second homes and vacation properties as a real estate investment.

Image credit: Joe Mabel; GFDL, CC BY-S.A. 3.0