Agent’s Lending Referrals- “3 Cards” Are Not Required”Daniel Dobbs2023-05-25T12:19:17-07:00
Dealing with lenders is often, Hell, and you already have experienced that!
Think back to the last transaction that blew up at the last moment as you were searching online flights to Cancun. Remember THOSE moments?
In retrospect, most likely, the lender in conjunction with the buyer’s own undisclosed personal issues; the lender didn’t protect you from the situation spiraling out of control.
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Or, the lender’s own incompetency caused the entire problem. Or, they were too busy working on their “refi pipeline” to fully devote themselves entirely to your “resale” transaction, which requires more attention to details, deadlines and is more time-consuming.
Home and termite inspections and other property issues are problematic, but they rarely kill a deal at the last moment.
Lending failures often hurt/kill friendships, family relationships or worker relationships. A lifetime of referrals and repeat biz are always on the line! Commissions can be replaced; relationships can’t.
Changing the Dynamic
Being more proactive in the overall ‘pre-lending” process will motivate an MLO to a better level of service; even if your buyer chose the lender. Reach out hold them accountable and if you get no communication alert the buyer to the impending consequences of closing late.
Get a Full DU loan approval before offers are written, as 50% of MLS listings require them to be submitted with the buyer’s offer. The other 50% will want them SOON during the “offer counter offer process”. Wouldn’t you?
Your lender may be reluctant and provide excuses for why they can’t perform the service. They can, but many won’t! Time to get a new lender.
It’s your client, your referral, and your commission on the line; they’re not doing favors by processing your loan.
If your lender can’t perform before the offer is written, they won’t function when the deal is on the line. Taking the position of “I’m only the agent” will lead to more boulders crashing down on you!
The First Step?
Many real estate agents still believe they must give out three different names when referring a mortgage lender. This is false.
There’s no RESPA Violation for simply expressing an opinion regarding a lender’s capabilities or service level; there’s no violation if you are not receiving anything of monetary value.
Where the Myth of “3 Cards” Started
From the “The wonderful people who brought us the Great Recession.”
The Three-Card Rule Faded in 2010
A previous RESPA rule allowed real estate agents to earn a separate fee from the buyer IF they helped borrowers IF they “evaluated financing options for the buyer.”
But that’s not what happened, and the RESPA loophole was closed and replaced with Dodd-Frank legislation. Under the old rule, there was no evaluation process; there was just a steering process!
Today’s RESPA and Dodd-Frank REQUIRE agents to be licensed as MLOs to earn fees for helping buyers evaluate financing options.
Nothing in RESPA, mortgage, or real estate regulations prohibits you from referring your clients to a specific lender. You’re just not allowed to get paid a fee from a lender.
No referral fees, no gift cards, no additional gifts can be given to you in exchange for a referral. Providing excellent service to earn referrals is not monetary compensation.
Another Myth: Legal Liability
You’re legally responsible for ONLY your actions as a real estate agent, and ONLY the lender is legally accountable for their actions. It’s that simple.
The only way this wouldn’t be the case is if you were to conspire with a lender to do an illegal activity together (i.e as paying/receiving a referral fee or concealing material facts). That’s a fraud!
On that Note: Steering Violations
According to HUD, a person who violates Section 8 may be fined up to $10,000 and imprisoned for one year. In a private lawsuit, a person who violates Section 8 may be liable to the person charged for the settlement service in an amount equal to three times the charge paid for the service.
No broker or agent can require a borrower to fill out an application (either online or a hard copy) OR to OBTAIN financing through a specific lender.
Also, listing agents can’t require a buyer to use their preferred lender as a condition of accepting a purchase offer.
A previous CFPB’s “Court Order” allows agents, to require borrowers to provide financial info (Proof of Funds—Credit Scores—Income is OK) for the purposes of a “cross qualification”;
The CFPB simply ruled the cross qualification process can not require “a buyer to fill out any loan application “in writing”.
What if They Do?
Only file the complaint after the offer is accepted, as the buyer may be reluctant to speak out until COE. You don’t need your buyer’s permission or co-operation; RESPA violations are priority enforcement actions.
Get everything in writing (from both the agent and the lender, sellers), save all of your emails even if the agent and lender don’t respond to you directly, the emails will be evidence, and keep a phone log with exact details.
If this has happened to you or your clients, there are legal remedies, and they start by contacting the regulators, DRE, CFPB and the DFPI.To file a complaint at the DRE, click here!
ALL complaint filings should be titled “RESPA Violation Steering.”
And all parties that are involved should be contained in the complaint, and that includes the seller. Especially the sellers, as the vast amount agents are ethical, or at the very least “know better, but sellers coerce them.
In Conclusion
Based on my 40+ years of experience: When the housing market gets tight, that’s when most of the steering violations occur as the seller may “feel too in total control.” They are NOT!
