Another day, another Realtor advertising loan programs on The Facebook, The Twitter and The Snap Insta-whatever social media platform is hot right now, or old-school mailers and postcards, Realtors live and die by leads. Marketing 101 taught us that there are two things that sell products: Sex and fear. Out of those two, fear sells more products than sex. “Buy now or be priced out forever” tastes sour to consumers who barely survived financial diarrhea over the last 10 years. So we turn to sex to get those phones to ring and by sex I mean “sexy,” as in hot, cool, new, interesting. What are we seeing Realtors advertise:
“Buy a home with zero down!”
“Buy this home for only $800.”
“Your mortgage payment could be the same as your rent!”
Advertising loan programs and holding oneself out to the public as being able to make a loan requires a loan originator license under the SAFE Mortgage Licensing Act, passed in 2008. Since the Realtors I see advertising this way are not licensed loan originators, then they’re getting these loan terms from their favorite loan originator.
What can go wrong when Realtors advertise loan programs? I can think of several thousand things. But let’s start with the most common problem: Consumers calls Realtor advertising a “zero down loan” program and wants to know the details. Realtor is very excited to have a hot consumer lead and starts to try and answer the questions about the loan program and explaining in as much detail as possible, what the loan program entails. Realtor is trying to be helpful! Nothing wrong with that, but Realtor has crossed the line and is now counseling borrowers about loan programs, which requires a loan originator license.
Don’t want to read the definition of a loan originator in the Federal Register? That’s okay, I read it for you. See page 78493.
(b) An individual engages in the business of a loan originator if the individual, in a commercial context and habitually or repeatedly:
(1)(i) Takes a residential mortgage loan application; and
(ii) Offers or negotiates terms of a residential mortgage loan for compensation or gain; or
(2) Represents to the public, through advertising or other means of communicating or providing information (including the use of business cards, stationery, brochures, signs, rate lists, or other promotional items), that such individual can or will perform the activities described in paragraph (b)(1) of this section.
(c)(1) An individual ‘‘takes a residential mortgage loan application’’ if the individual receives a residential mortgage loan application for the purpose of facilitating a decision whether to extend an offer of residential mortgage loan terms to a borrower or prospective borrower (or to accept the terms offered by a borrower or prospective borrower in response to a solicitation), whether the application is received directly or indirectly from the borrower or prospective borrower.
(2) An individual ‘‘offers or negotiates terms of a residential mortgage loan for compensation or gain’’ if the individual:
(i)(A) Presents for consideration by a borrower or prospective borrower particular residential mortgage loan terms;
(B) Communicates directly or indirectly with a borrower, or prospective borrower for the purpose of reaching a mutual understanding about prospective residential mortgage loan terms; or
(C) Recommends, refers, or steers a borrower or prospective borrower to a particular lender or set of residential mortgage loan terms, in accordance with a duty to or incentive from any person other than the borrower or prospective borrower; and
(ii) Receives or expects to receive payment of money or anything of value in connection with the activities described in paragraph (c)(2)(i) of this section or as a result of any residential mortgage loan terms entered into as a result of such activities.
Realtors: What would it be like if loan originators started counseling home buyers and sellers on how to negotiate the real estate commission. How about if loan originators started advertising that they can help home sellers who are selling, “for sale by owner” hold open houses on the weekends or if loan originators counseled home buyers on how to negotiate a lower selling agent commission. Or if loan originators explained to homebuyers that they actually ARE paying the selling broker’s commission because it’s built into the sales price of the home? They’re paying the selling brokers commission every month in the form of a higher sales price and with that, a higher monthly mortgage payment. What if loan originators advertised that they can help home sellers figure out the best listing price?
Loan originators would choose not to do any of the above because they’d want to avoid practicing real estate without a license and they wouldn’t want to wake up with a horse’s head lying next their dead career.
So why are Realtors stepping over the line and selling loan programs?
Maybe you went to a meeting or seminar or big event with a guru who pranced around onstage talking about how he built his “team” by co-marketing with his vendors and now you’re being told to create “referral partnerships” with your lenders where you and your favorite LO can “work the leads” together. Okay, well then that’s an entirely different conversation we’ll need to have another time. You can read my current opinion on “marketing services agreements” here and here.
Realtors need lenders and lenders need Realtors. That truthiness will never go away. We’re on the same team, both working together toward the goal, and we got each other’s backs…but let’s all acknowledge that we have our roles and our boundaries. The referee in this game is our state and federal regulators and nobody wants to get a yellow card.