(This is Part 2 of a three-part series. See Part 1 and Part 3.) Last week I made the point that referral power -- the power to direct a client to a specific service provider -- is pervasive in the home mortgage market. Referral power raises prices to consumers. Competition for the favor of referral agents raises the costs of service providers, which are passed on to consumers in higher prices. Referral power also results in referral fees paid by service providers to those from whom they receive referrals. In the mistaken belief that the elimination of referral fees would reduce prices to consumers, Congress enacted the Real Estate Settlement Procedures Act (RESPA), which, among other things, makes referral fees illegal. Q: "Has RESPA prevented referral fees?" A: No. There are too many referral agents and too many ways they can receive something of value from service providers. HUD, the enforcement agency, would require an army of examiners to shut it down, and it has never had su...
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