In House Lender Rules in 2015

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2015 was the year that “In-House/Paying Preferred Lender” agreements ended.  The biggest change in the mortgage marketplace in recent years has undoubtedly been in the compliance sector.   Federal regulators have clamped down hard on mortgage companies nationwide with new more restrictive and invasive compliance regulations.  It was actually legal for a lender to “steer” a borrower to benefit themselves financially.  Can you believe that this was not only going on, but a very common practice in the industry?  Now you can understand the Federal Government’s need to make some critical changes!

Realtors Also Scrutinized by the Fed

For a long time the mortgage industry had been its own in a petri dish under the Fed microscope.   Meanwhile, Real Estate companies and builders had been steering clients more than a NASCAR driver on the The Glen!  Lenders often paid Real Estate companies big bucks to “steer” clients their way.  This practice is now against the law.  Builders did and still do a different variety of the same dance.  They often grant buyers BIG incentives IF that buyer uses the builder’s in-house lender.  Consequently, they also often decline those same incentives if the buyer picks an outside mortgage lender.

The whole flavor of the new compliance wave we have been surfing is anti-steering and full disclosure.    Your Realtor can no longer pressure or incentivize you to use their paying “preferred lender”.  Additionally, a Real Estate Brokerage cannot force their Real Estate agents to use a paying “preferred lender”.  This “pay-to-play” game was going on daily in the real estate world and it had to stop.  It was commonplace for a lender to PAY for the Real Estate Company’s overhead costs in trade for referrals!  Hardly an action that is in the clients best interest.

Choose the Best Lender for the Job

Having an in-house mortgage lenders pay for referrals is ilicitly illegal.  Thankfully it is also now the opposite of the new mortgage industry compliance environment.  Real Estate agents are still able to refer their most trusted mortgage lender to their buyers.  But now it is for all the right reasons.  in contrast, the law is being broken if a Real Estate Company refers a mortgage lender in exchange for financial rewards.  order to earn an additional stream of revenue instead of making sure that clients are well taken care of.  I have heard multiple stories of issues that come up with an in-house paying “preferred lender” not working out

How New Laws Protect the Home Buyer

Now, when a real estate company or realtor refers you to their “preferred lender”, it’s for the right reasons!  The incentive scheme is and always has been unjust.  In just about any business on earth, the company performing services or selling products puts their best foot forward and focusses on impressing their customers.  This is why more people seek to use them – they are great at what they do.  They are honest and reliable.  When a lender pays big bucks to obtain referrals, it often undercuts the traditional “work to impress the client” mode of motivation.  An attitude of expectancy or entitlement may set in for paying lenders.  Since they are paying the Real Estate Company they may feel that the referrals will just keep coming and they may not to go the extra mile to prove themselves worthy.

Changes Affected Real Estate Companies

Until 2015, it was common practice for lenders to pay big bucks to Real Estate Companies for business.   Sounds pretty illegal doesn’t it?  Well, it didn’t used to be.  No one ever got in trouble because there were no Federal laws or regulations against it.  However, in 2015 the Fed imposed new regulations that altered how a preferred lender relationship can operate in the marketplace.

What is Still Allowed?

Realtor and preferred Lender relationships ARE still allowed, however, the framework has changed.  There remains a place for shared marketing in Real Estate/Mortgage relationships.  The Fed states that as long as the financial contributions/services can be documented to justify the cost share it’s legal.   The Fed wants to make certain that a Real Estate/Mortgage lender partnership is mutually contributory and beneficial.   Shared marketing or co-hosted event costs and benefits must be split 50/50 to be compliant.

By Jeremy House


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