Are Lenders Shaking Down Agents for Referral Fees?Daniel Dobbs2023-11-21T12:09:20-08:00
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There will be another post in a few days as the CFPB has filed a 12-count civil complaint against Rocket Homes in Federal Court in Washington D.C.; that has been two years in the making and posted in the Miami Herald on May 15th (2023).
This post is long, 1300 words – but the investigation and court – will affect your career (both as listing and selling agents) so it’s worth the 4–5-minute read.
The Backstory
Online lenders have marginalized the real estate agent community. Post Covid, many agents, and lenders have disengaged. Caravans, office meetings and other networking events are smaller and less frequent, and many lenders are not as accessible.
As a result, buyers have begun to migrate to online lenders to fill the void.
And it opened the door for online lenders (with their huge adverting budgets) to take market share (listings and buyers) away from agents as the lenders have formed their own cabal of in-house agents.
This is a comm check killer for most agents! Online and FinTech lending are driven by big advertising budgets – not relationships; which are key to long term agent (and MLOs) careers.
“Listers Last”
I don’t get involved with buyers or their lenders” is a common lamentation by many agents.
No doubt; listings are better – but if the buyer’s lender screws up the deal – the owner and their listing agent both suffer.
“Buyers aren’t loyal” is what I hear from many agents, and often that’s true, as with any sales position – buyers can be narcissistic and fickle!
But it’s also often a self-fulfilling prophecy, and it starts when agents don’t exercise their due diligence in vetting potential lenders for referrals.
But its not always a listing market as we saw during the great recession of 2007- 2012.
And if (when) the next recession arrives- it will be a buyers’ market then.
So, What’s the Alternative?
The alternative (losing control of the transaction) is a miserable transaction!
Regardless of whether it’s a seller or buyer’s fault -(even when its unspoken and {often} the clients own fault), both are less likely to refer either agent (or the MLOs) in the future.
Purchase transactions can be a circus – and the ringmaster is the agent! Its unavoidable and inspections- repairs – buyers and sellers squabbling – and worst of all, lenders who are not available can kill futrer referrals.
Vetting lenders is the easy part.
An agents’ power over any relationship lender (credit unions/loan brokers/ and some banking MLOs) is the promise of future referrals.
It’s a strong incentive for MLOs to perform.
It’s the opposite for FinTech lenders who are an advertising-based business model– agents are considered a “1 off” and virtually are irrelevant.
Need to speak to a FinTech MLO to get updates – good luck with that! Just getting the same person on the phone at any FinTech lender is a feat.
How else could it be – purchase transactions are tedious, time-consuming and labor-intensive.
Not exactly a profit center.
But now, Fintech lenders have a new business model and it MAY (legal disclaimer) may be shaking down agent’s for referral fees.
In a little-known civil action, the CFPB is investigating the real estate affiliate of Quicken Loans for illegal kickbacks.
Specifically, the consumer watchdog agency is wondering whether Rocket Homes Real Estate violated the RESPA Act when it charged fees for referring Quicken’s mortgage clients to real estate agents.
Under RESPA, collecting money without providing “meaningful” services is illegal.
The CFPB’s investigation has gone largely unnoticed because it does not publicize such cases until guilt is determined.
And rightly so — announcing an investigation without such findings would cast an unnecessary cloud over innocent companies.
Quicken, one of the nation’s largest mortgage lenders, did not respond to a request for comment.
But the company, which went public in early August under the name Rocket Companies, said in its IPO prospectus that it “intend(s) to cooperate fully with the CFPB in this investigation and (is) confident in the compliance processes that Rocket Homes has in place.”
The case was brought to my attention by Dmitry Shkipin of HomeOpenly.com, who has filed a complaint against Rocket Homes Real Estate with the FTC alleging not only violations of consumer protection laws and market allocation practices, but also antitrust laws.
Shkipin said during a lengthy telephone interview that he believes his allegations are the basis for the CFPB probe.
He has filed similar charges against Better Mortgage, and LoanDepot, but because those companies are not publicly owned entities, it is unknown whether they are also being investigated.
Shkipin contends all of these lenders operate sham “paper brokerages” set up with only one thing in mind: to extract fees from realty agents — fees consumers ultimately pay, often in exchange for poor service.
Shkipin came to me after my coverage of the damning Consumer Federation of America report in October that said that online referral agencies, which collect fees for referring buyers and sellers to local realty agents, are all but useless.
In these “pay-to-play” schemes, CFA said, referral agencies often refer people to mostly inexperienced or hardly active agents who are unable to generate their own leads.
In most cases, CFA said that agents will not negotiate their commissions because they have already given away a chunk to agents referring clients to them.
Often clients receive less-than-full service because an agent will only pay a portion of the commission. But Shkipin contends some mortgage companies go further by skirting RESPA.
They do so, he argues, because they fail to add anything of value to the transaction other than handing off a lead to realty agents.
His complaint says that while Rocket promises to match Quicken’s borrower clients with highly rated realty agents, but, it connects them with “only real estate agents (who) have agreed to pay a referral fee.”
The fee is never disclosed to the client, according to Shkipin.
“In reality,” alleges Shkipin, “Rocket Homes is a broker-to-broker collusion scheme that utilizes its parent mortgage company’s consumer information and passes it along to a colluding broker, who is willing to pay for it with a cut of their commission.
All partner agents agree to pay Rocket Homes a prearranged referral fee on all closed transactions through their employing broker.”
Under Section 8 of RESPA, referral payments are allowed only when all parties are acting in a “brokerage capacity”.
But Shkipin maintains that Rocket does not meet that test.
He contends that instead of representing consumers to help buy and sell houses, the company “actively disengages” from those activities so that partner agents know Rocket will not compete with them for clients.
He alleges that uses its real estate license “to collect blanket referral fees from the largest number” of agents possible.
It “has absolutely no duty of care to consumers and takes no responsibility for the transaction, despite receiving a direct financial benefit.”
Moreover, he maintains that Rocket violates the Sherman Antitrust Act in collecting blanket fees, which requires agents and their brokers to compete for consumers without entering into agreements that restrain free trade.
“It is a per-se violation when the parties agree to a ‘standard’ referral fee that will be paid for producing a client,” he says in his complaint.
Ironically, Shkipin’s company, HomeOpenly, is also a service that helps buyers and sellers find agents.
But he says his operation is different in several respects.
For one thing, it is an open marketplace, not a real estate brokerage, where all service providers listed on the network compete for consumers’ business individually.
For another, it earns its keep from advertising, not referral fees.
He argues that companies like his operate at a competitive disadvantage so long as brokers can trade consumers as leads for blanket referral fees.
As long as referral schemes are allowed to operate, he explains, agents are naturally encouraged to participate.
There are no upfront costs, they pay only when a sale closes and sometimes hike their commissions to cover the referral fee they must pay.
“Any agent who chooses not to participate in such schemes risks losing ‘free’ business,” Shkipin says.
