This article was first published on March 12, 2020 over at Inman Real Estate News.
Real estate agents ought to consider best practices with regard to “advertising,” which can include posting about rates on social media, or holding yourself out as being able to make a loan.
Let’s start with the definition of a “Loan Originator” from The Dodd Frank Act. You can read the very long and detailed definition here, at the bottom of page 17. Or here.
(1) Loan originator.
(i) For purposes of this section, the term “loan originator” means a person who, in expectation of direct or indirect compensation or other monetary gainor for direct or indirect compensation or other monetary gain, performs any of the following activities:
Takes an application, offers, arranges, assists a consumer in obtaining or applying to obtain, negotiates, or otherwise obtains or makes an extension of consumer credit for another person; or through advertising or other means of communication represents to the public that such person can or will perform any of these activities….The term does not include…
…(C) A person that performs only real estate brokerage activities and is licensed or registered in accordance with applicable State law, unless such person is compensated by a creditor or loan originator or by any agent of such creditor or loan originator for a particular consumer credit transaction subject to this section.
Q: With regard to the definition of a loan originator, is it ever okay for a real estate agent to advertise interest rates or loan programs?
Best practices: Only licensed loan originators and mortgage brokers, lenders, or depository banks/credit unions should advertise loan programs. The definition of “advertise” includes holding oneself out as being able to make a loan. This includes all forms of advertising including social media.
Q: What about co-advertising with a lender?
Who is paying for the advertising?
If the loan originator is paying for any portion of the co-advertising, then the real estate agent is directly or indirectly “receiving compensation from a lender” in exchange for a referrals.
Best practices for real estate agents: Ask the loan originator to provide written confirmation that all co-advertising has been approved by the lender’s compliance and legal department. If the lender does not have a compliance and legal counsel, this is a massive red flag and I don’t know why you’re referring consumers to that company. If loan originator is not willing to provide such written assurance, real estate agent should accept the risk of heightened liability that the co-advertising could violate anti-kickback provisions of RESPA Section 8.
Best practices: Real estate agents should always hire their own attorney for legal advice on entering into any co-marketing agreement. Don’t want to pay for an attorney now? Then plan to pay for an attorney later.
Consumer Financial Protection Bureau
Compliance Bulletin 2015-05
October 8, 2015
RESPA Compliance and Marketing Services Agreements (Also known as co-marketing.)
In the following CFPB cases, real estate agents were compensated directly or indirectly by the lender.
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CFPB Consent Order: RE/MAX Gold Coast
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CFPB Orders Prospect Mortgage to Pay $3.5 Million Fine for Illegal Kickback Scheme
Real Estate Brokers and Mortgage Servicer That Took Kickbacks from Prospect Also Ordered to Pay $495,000
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CFPB Consent order: Willamette Legacy DBA Keller Williams Mid-Willamette Valley
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Q: What if I use to be a loan originator a long time ago and know the answers to the questions my homebuyers are asking?
Real estate agents have a high duty to provide clients with accurate, current information. Are you currently a licensed loan originator? If not, refer questions that require an LO license, to a person who has an active loan originator license and is employed by a licensed mortgage broker, lender or depository bank/credit union. I know you’re trying to be helpful and demonstrate knowledge, but mortgage lending laws change frequently.
If you’re still not convinced that real estate agents should stop advertising loan programs and quoting mortgage rates and fees, consider these examples of loan originators advertising real estate commissions:
“Did you know that real estate commissions are at all time historic lows? Contact me, loan originator, for a referral to a real estate agent with the lowest possible commission.”
“Contact me, loan originator, for analysis on how your real estate agent’s commission is hidden in the sales price and therefore, the price of the home.”
“I, loan originator will help you understand how to negotiate paying a lower real estate commission so you don’t have to pay it every month, in the form of a slightly higher sales price which translates to a slightly higher payment over the life of the loan. Look at these spreadsheets and graphs.”
Loan originators originate loans. Real estate agents sell houses. Good boundaries are needed every day and especially during these volatile times.
Check the license status of any loan originator in the United States with the Nationwide Mortgage Licensing System