Regulations

Survey suggests rewards of providing ancillary services outweigh risks

3 out of 4 brokerages offering services like mortgages, title insurance and home warranties

Three out of 4 real estate executives say their brokerages offer at least one ancillary service, with mortgages, title insurance and home warranties among the most popular offerings, according to an online survey by Imprev Inc.

Among brokerage firms offering at least one major ancillary service, 89 percent offer mortgages, 71 percent offer title services, and 49 percent offer home warranties.

While higher profits were the most often cited benefit of offering ancillary services (79 percent), 70 percent of the nearly 200 real estate executives surveyed by Imprev in May also identified “one-stop marketing opportunities” as a benefit.

Another 62 percent cited “increased customer satisfaction” as a motivation for offering ancillary services, and 60 percent said providing such services helped ensure “better quality control.”

The provision of mortgage, title insurance and other settlement services is highly regulated, and not without risk.

Real estate brokerages that operate affiliated businesses that provide mortgages, title insurance and other services including natural hazard disclosure reports must comply with the Real Estate Settlement Procedures Act (RESPA). Marketing agreements with mortgage, title insurance and home warranty companies are also subject to RESPA’s anti-kickback provisions and have been the subject of numerous legal disputes.

Last year, American Home Shield Corp. agreed to pay up to $26 million to settle allegations that the company paid illegal kickbacks to real estate brokers and agents to market the company’s home warranties in violation of RESPA.

The Consumer Financial Protection Bureau is looking into whether one of the nation’s largest mortgage lenders — PHH Corp., whose PHH Home Loans LLC subsidiary is jointly owned by real estate franchisor and brokerage Realogy — violated RESPA by reinsuring loans for private mortgage insurers it referred business to. In its most recent quarterly report to investors, PHH Corp. said that the investigation is ongoing, but that the the company stopped reinsuring loans  originated after 2009 and believes that its practices complied with RESPA.

The Real Estate Services Providers Council Inc. (RESPRO), an industry trade group that lobbies on behalf of companies providing affiliated business arrangements (AfBAs) and helps them negotiate RESPA and other legal issues, is holding a seminar on affiliated businesses next month in Nashville.

RESPRO says implementation of the Dodd-Frank Wall Street Reform and Consumer Protection Act “will create new and unprecedented enforcement challenges as the Consumer Financial Protection Agency (CFPB) ramps up its enforcement and as the plaintiff’s bar pursues new targets for class-action lawsuits.”

While many brokerages offer homebuyers opportunities for “one-stop shopping,” companies like ClosingCorp, are using technology to build databases that make it easier for mortgage lenders, real estate professionals and consumers to shop for and order settlement services.