While real estate agents will find it difficult to serve as both real estate agents and mortgage brokers, or real estate agents and part-time lender employees, agents may still be paid under a RESPA exemption that permits persons (even ones that refer lenders business) to be paid for services rendered, so long as the payment is commensurate with the services provided. A real estate agent who spends an hour with a customer taking a preliminary credit application and collecting certain credit documents (i.e., W-2s, pay stubs, bank statements) has performed a genuine service for the lender that is actual, necessary, and distinct from the agent's normal duties. Reasonable compensation (generally a flat fee, not a percentage of the loan amount) may be justified. Note, however, that real estate agents may not take loan applications in connection with FHA-insured loans.
Even if I do not perform the requisite number of functions to be considered a mortgage broker or do not become a true part-time employee of the lender, can I still be paid something for the work I perform for the lender?
Can a lender advertise on my website?
Yes, as long as you follow the rules set out in the Real Estate Settlement Procedures Act (RESPA). These rules come into play any time a real estate broker in a position to refer mortgage business to a lender is paid a “thing of value” by the lender.
A broker may charge a lender a flat fee to place the lender’s banner ads or hyperlinks on the broker’s website, but the payment must be reasonable and commensurate with the value of the service. Some brokers charge a small fee every time someone clicks through to the lender’s website. This appears permissible under RESPA guidelines as long as the fee is minimal and not tied to whether that click results in a loan.
A fee based on a transaction between the lender and a consumer is prohibited by RESPA. For example, it would be a RESPA violation if you received a fee for every click that resulted in an application or closed loan.
I keep hearing about new RESPA rules that allow real estate agents to sell a buyer a home and earn a loan-origination fee from the lender. Others claim that their programs have been blessed by HUD. What are these new rules and have lenders received HUD approval for these programs?
First, there are no new changes to RESPA. Information about real estate agent and mortgage broker compensation first appeared in a 1995 HUD informal advisory opinion issued to the Independent Bankers Association of America. This letter, often referred to as the Retsinas Letter (after the former FHA Commissioner who issued the letter), was later incorporated by reference in a March 1, 1999, RESPA Statement of Policy Regarding Payments By Lenders To Mortgage Brokers, 64 Fed. Reg. 10080. Under these guidelines, agents and brokers may receive fees for performing loan origination work on a lender's behalf, such as taking a loan application, counseling borrowers, ordering credit reports and appraisals, and completing loan documents used to process the loan. The fees must be "reasonably related to the value of the services performed." Finally, many of the promotional materials claim their compensation programs have received HUD "approval." While HUD may provide general guidance, the department does not approve individual business plans, and generally does not opine as to what amounts constitute fair and reasonable compensation. Before accepting the claim at face value, ask to see a copy of HUD's approval.
Can a brokerage allow a mortgage company to sponsor a luncheon that offers CE for its agents?
It depends. A mortgage company sponsoring an educational event to promote its services can do so as long as the cost associated with the event doesn’t cover any of the agents’ other expenses they would otherwise have to pay, such as the cost of the CE credit. The mortgage company can’t sponsor the luncheon on the condition that it will receive referrals, either. And the company must promote its services during the event to qualify for the Real Estate Settlement Procedures Act (RESPA) advertising exemption.
Some programs offer to make real estate agents part-time employees of the lender. How does this work and is it legal?
Since RESPA exempts payments by an employer to its employees, several programs offer to make the real estate agent a part-time employee of the lender. However, only bona fide employees are covered by this exemption. The Internal Revenue Service sets strict standards for employment. Although HUD has never published criteria, it's likely the IRS rules would prevail. That means in order to be considered an employee rather than an independent contractor, the agent/loan officer must: 1) be under the supervision and control of a lender's office; 2) use the lender's equipment; 3) have set hours; 4) receive a W-2 form; 5) receive standard employee benefits; and 6) have the lender be liable for the employee's conduct. That means that a real estate agent that becomes a "loan officer" only after selling a property is unlikely to be considered a true employee and therefore would not be covered by the RESPA exemption.
What about programs that offer to pay a real estate agent for names of potential borrowers?
In one informal HUD interpretation, the department indicated that a sale of a list of consumers to a settlement service provider did not violate RESPA provided the payment is for the use of the list and is not further conditioned upon the number of closed transactions resulting from the list, or any other consideration, such as an endorsement of the product being offered by the seller of the list. Thus, a real estate agent could receive nominal compensation, for supplying a lender with certain basic information about a customer (i.e., name, address, telephone number, price of the newly purchased home, etc.). However, under the circumstances, the real estate agent should not promote the lender or its services to the customer, and the payment must be made to the agent, regardless of whether the lead ultimately turns into a closed loan.