“Preferred Lender” and Realtor Financial Relationships

MSA's May End Soon

MSA’s May End Soon

Mortgage Companies paying Realtor’s for business is in it’s final days.   Builder’s selling business to “preferred lenders” is also near extinction.  Why you ask?  The mighty Fed is making changes such as these all in the name of consumer protection.

Learn more about Lender/Realtor partnership regulations

Consumer Protection at Top of Fed’s List

The Feds’ bottom line on this issue is clear.  A properly executed and documented Realtor/Lender shared expense showing a direct tie to collectively generating new business receives the Feds’ seal of approval.  However, a lender paying a Real Estate agent for referrals when no direct connection to a marketing activity exists is a Fed violation.  The Fed categorizes this form of payment as a kickback or “pay to play” fee.   In 2015, the Fed had lender/realtor financial arrangements such as this firmly on their radar.

For example, a Real Estate agent’s office rent paid by a mortgage lender in order to gain “preferred lender” status fell under the Fed’s microscope.   The Fed asked “how is lender paid rent directly driving new business?”  Agent’s argued saying  “lender paid rent offset fixed costs by paying rent freeing up cash for a realtor to reinvest in business building activities.”  “Indirect” or “sort of” are not in the Feds vocabulary.  The Regulatory game is a game of absolutes.  The Fed loves making examples of those falling outside the scope of their rules.

The same thing has happened in the medical field.  The Fed also limits drug reps marketing and schmoozing doctors.  The Fed requires that a consumer connection to a product or service (mortgage or medical) cannot relate to a “pay to play” or kickback arrangement.  Instead, the connection must originate due to a client chose and belief that the lender or the drug both work miracles!  A referral to a great lender (even if it is just 1) is okay.  However, a client’s future depending on a lender who decided to pay an Real Estate agent’s rent is an unstable practice. 

Mortgage Lenders & Realtors Can Still Partner

On the flip side, the baby was not tossed out with the bathwater.  Lenders can help with costs as long as the shared costs go directly toward new business development related activities.  For example, mailers, movie events and client appreciation parties are acceptable shared marketing activities.  As you can see, there are ways to “co-market” and still get a thumbs up from the regulators.

By Jeremy House

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