I went to a mortgage whore, he said my life's a bore

Dear Jillayne,

I have two residential loans that have been referred to me, one from a mortgage broker in Colorado and another from a credit union. Both LOs have already taken the loan application, gathered all the supporting documents, and sent the loans through the lender’s automated underwriting system. The credit union is unable to make the loan because the dollar amount is too large for their institution. The mortgage broker in Colorado is not licensed to do business in WA State. Both of these LOs would like their client taken care of but because of the amount of work they’ve done already, they would like to get paid on these files. Of course I would disclose all fees to the consumer, but is this even possible to do?

John.

Dear John,

Because of the subprime and now prime mortgage market meltdown, we are going to see some incredible changes taking place in state and federal law during the next decade. One of the main problems with the mortgage lending laws today is that mortgage brokers can only earn a fee if a loan is made. This sets up an external motivator for an LO to make lots of loans, whether or not the consumer needs a loan. This should and will change. Someday you will be able to earn a fee for, let’s say, giving a borrower valuable financial advice relating to their mortgage loan, similar to how you might hire a CPA to advise you on matters within their scope of knowledge.

Let’s first take the example of if YOU were in the position of referring a loan to another broker. Let’s say you didn’t have FHA approval, your cousin Vinnie over at XYZ brokerage did, and you wanted to earn a fee of X for sending the loan to Vinnie. This is not allowable under many state laws governing mortgage lending (and for WA state, see the MBPA.) You can only earn a fee when a loan is made and the loan originator as presented to the lender on this transaction was Vinnie. If Vinnie hands you some cash outside of escrow, this is called an “unearned fee.

Is your agent spending your money without asking your permission?

It is common practice in the real estate industry, and has been since the beginning of time, for your agent to assist you outside of their area of expertise or geographic service area.

Let’s say you ask an agent to come to sell your house in Seattle.  They ask where you are moving, and you say California.  They offer to have an agent contact you in that area.  You thank them.  You just spent $6,750 if you buy a house in California, using the agent that contacted you, for a home purchase of $900,000.00.  The Seattle Agent who talked to you about this will get $6,750 when you close on your home in California, EVEN IF you never hire that agent to sell your house here in Seattle.

OK, I’ll stop shouting.  The same agents who will scream “disclose, disclose, disclose” when it covers their butt if you do, will not disclose referral fees and ASK your permission to SPEND YOUR MONEY!  Oops shouting again.  Sorry, this topic just freaks me out.  I better go chill.