Never Feel Pressured to Use a Specific Mortgage Lender

By Andy Harris, President of Vantage Mortgage Brokers

If mortgage lenders can’t earn business through competition and reputation, they do so through compensation and manipulation.

I’ve used these terms for many years in this industry after witnessing some pretty concerning and disgusting behavior among colleagues.  Let me explain…

The Real Estate Settlement and Procedures Act (RESPA) was enacted in 1974.  This Federal law protects consumers from predatory lending practices in the real estate industry and relates to most consumer residential mortgage loans.  RESPA covers several items (loan disclosures, title insurance, escrow accounts, etc.); however, the most violations we see and the most consumer-harming activity are kickback violations.  In Section 8 of this law, RESPA prohibits kickbacks and bribes between real estate representatives.  This includes gifts, cash, promotional items, or prizes given to referral sources.

The most common violators consumers experience are unscrupulous real estate agents and companies steering a specific lender or set of lenders for financial gain (kickback) for that business referral.  Both parties in these predatory transactions violate Section 8 of the rule.  This is also a common trend for builders when it is not a bona fide Affiliated Business Arrangement (ABA) with the required disclosures.

The way to spot these relationships is not always accessible from the consumer’s standpoint, providing a solid effort to conceal by violators.  These are often hidden in phony and fraudulent Marketing Service Agreements (MSAs), sham shell companies, behind-closed-doors agreements, “Preferred” lender relationships, etc.  What is more concerning is that these ‘professionals’ are hired by the consumer to look out for their best interests and instead do the opposite by steering them to inferior services and costs for their financial gain.  Those steering mortgage lenders were found to be the most financially harming to consumers of how this impacts their interest rates and loan fees versus independently shopping.

Some great real estate agents refer good mortgage companies and loan officers and don’t violate RESPA, but you must be extremely cautious if they advertise any ‘preferred’ lender, promote, or pressure you to use one single option.  Remember that you’re in the driver’s seat.  You employ everyone involved; never hand them the wheel or allow them to steer you.  Interview, ask questions, and self-educate.  Terminate services if necessary.

What Section 8 Prohibits

1. Kickbacks: Referrals of business for real estate settlement services that involve a fee, kickback, or anything of value.
2. Unearned Fees: Sharing fees or receiving fees when no actual services were performed.

Examples of Violations 

• Referral Agreements: A real estate agent receives a fee or gift from a mortgage lender in exchange for directing clients to them.
• Sham Affiliated Businesses: Setting up fake companies to funnel fees, such as a title company owned by a real estate agency charging excessive fees without providing actual services.
• Splitting Charges: A title company or lender splits a fee with another party without providing a legitimate service.

Penalties for Violations

Violations of Section 8 can result in severe penalties, including:

1. Civil Liability:

1. • Treble damages (three times the amount of the charge paid for the settlement service).

2. Criminal Penalties:

2. • Fines up to $10,000.
   • Imprisonment for up to one year.

3. Regulatory Actions:

3. • Disciplinary actions by regulatory agencies, including suspension or revocation of licenses.

How can you protect yourself?

As a consumer, avoiding RESPA Section 8 kickback violations means staying informed, vigilant, and proactive during real estate transactions. Here are key strategies to protect yourself:

1. Understand Your Rights Under RESPA

• No Forced Referrals: You have the right to choose your own service providers (e.g., title companies, home inspectors, and mortgage lenders).
• Full Disclosure: Settlement service providers are required to disclose any affiliated business arrangements and ensure you’re not required to use their affiliates.

• These documents outline estimated costs for your loan and settlement services. Compare them to ensure no unexplained or inflated fees appear.

3. Ask for Multiple Quotes

• Get quotes from different service providers (e.g., lenders, title companies, and inspectors). If one service provider pressures you to use their “preferred” partner, this could be a red flag.

4. Watch for Red Flags

• Bundling of Services: Be wary of situations where you’re told you must use a specific service provider or bundle services.
• Unnecessary Fees: Look for fees labeled as “administrative,” “processing,” or other vague terms. Ensure they are tied to specific services.

5. Ask About Affiliated Business Arrangements

• If a service provider recommends another company, ask:

• • Are they affiliated? If yes, request a written disclosure (required under RESPA).
  • Are you required to use this provider? (Hint: You shouldn’t be!)

6. Document Everything

• Keep records of:

• • Communication with service providers.
  • Disclosures of any business relationships or affiliations.
  • Receipts and invoices for services.

7. Report Suspected Violations

• If you suspect a violation of RESPA Section 8 (e.g., hidden kickbacks or unearned fees), you can:

• • File a complaint with the Consumer Financial Protection Bureau (CFPB).
  • Seek assistance from a real estate attorney.

• Familiarize yourself with typical settlement costs in your area. This helps you recognize when fees seem unusually high or unnecessary.

• You have the right to shop around. If you feel pressured to use a specific provider, walk away or question why.

• Choose licensed and experienced real estate agents, mortgage brokers, and attorneys with a good track record for ethical practices. Verify their licenses if needed.

By staying informed and carefully reviewing all documents, you can avoid being a party to RESPA violations and protect your financial interests.