Recently, the Consumer Financial Protection Bureau (CFPB) issued an advisory opinion to protect mortgage shoppers who are comparison shopping. The CFPB was concerned that it would appear to shoppers (i.e. Buyers or Borrowers in a real estate settlement transaction) that the Buyers were getting objective comparisons, but instead the Buyers were being referred to lenders who were paying referral fees.
The CFPB is generally not only concerned about referrals to lenders, but also referrals to other real estate settlement services, such as settlement attorneys or title companies. More importantly, the CFPB is concerned that Lenders and Realtors might recommend providers that they have a relationship with, but those providers might not offer the best deal.
The CFPB is specifically concerned with the Real Estate Settlement Procedures Act (RESPA). This Act provides protections for consumers who are buying a house. RESPA states that “no person shall give and no person shall accept any fee, kickback, or thing of value pursuant to any agreement or understanding, oral or otherwise” for the referral of services. The concern is that kickbacks and referral fees “tend to increase unnecessarily the cost of certain settlement services.”
You may ask, what are some things that Realtors and Lenders can do to protect themselves from violating RESPA when they recommend a settlement attorney or title company or a lender or insurance provider? The answer may be old news. Aside from the obvious suggestion to always have your RESPA attorney review your agreements and disclosures, there is something else to keep in mind. The procedure in the old days, which is still a good idea, was always to give the Buyer/Borrower choices! Give them 3 or more choices so that they can shop for services, including inspectors, lenders, settlement attorneys and title companies.
Ask yourself a few simple questions before you give out referrals:
-Have I given my customer/client at least 3 choices for a settlement service, or did I just insert the name of a title company into the Contract without even telling the Buyer that they had the choice of settlement services providers and the chance to shop around?
– Did I adequately explain to the Buyer that they could shop for the many different services, inspectors, lenders and title companies required for settlement and that the prices and quality could vary?
– Did I properly explain to the Buyer that my company or perhaps even I, as a Realtor, may have an ownership interest in the title company or lender that I routinely slotted into the transaction?
-Am I following the Realtor Code of Ethics rules regarding looking out for the best interest of the Buyer client so that they get the best services at the best prices?
-The final question you have to ask yourself is whether a single disclosure buried on page 80 of the Contract truly helps your client understand what is in their best interest, what will save them the most money and what/who will provide them with the best services and did I carefully explain the meaning of that disclosure?
It is important to remember that the Consumer Financial Protection Bureau, as well as local Insurance Commissions and Attorney Generals have indicated an increased interest in enforcing the RESPA rules and related regulations, and Realtors, Lenders and all service providers should be certain to comply with the rules.