Shine RESPA light on other 'hands in the pot'

Submitted by Diane Cipa on June 25, 2010 - 7:33am.

I don't look down on Realtors as thieves. I used to be a Realtor and members of my family are Realtors. I have been a lender and a title agent for over thirty years. The perspective of the other players in a transaction is that Realtors usually get a pass when it comes to tough legislation. The political power of the Realtor lobby protects a referral structure that virtually locks down access to consumers in many markets. This has forced most of mortgage lending, title insurance and other settlement service providers to spend most if not all of their efforts and marketing money on Realtors, rather than on consumers. Many are enslaved in affiliated businesses and in the end, the consumer has not been well served. We are in an industry-wide re-evaluation and so now you know what it feels like to have a transparency in pricing. Welcome to the club.

We all need this. It's a good housecleaning of standards and practices.

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Submitted by Heidi Golff on June 25, 2010 - 7:50am.

Assisting a home buyer with chosing the best home warranty program for their needs should never be influenced by money going in to a realtor's pocket. It's simply not good real estate practice. If we truly are in need of an additional $50 outside of our commission, perhaps a better way would be to obtain a part time job. Here is another reason why: Home Warranty companies are nortorious for angering home owners.(Sorry to the good ones out there, but it's true). Do you really want an accusation coming down on YOUR head that the only reason why your buyers are now stuck with their plumbing problem is because you took money from the warranty company? That you "steered" them toward this warranty company because of the money and not their service? It can't be worth it!

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Submitted by Howard A. Lax on June 25, 2010 - 8:51am.

Read the policy statement and ignore the mention of real estate brokers and HWC. HUD is not interpreting the RESPA Section 8(c) exception for cooperative brokerage agreements. If this policy statement were limited to an interpretation of the cooperative brokerage agreement exception, then this policy statement would only apply to brokers. If HUD intended to limits its interpretation to interpreting the cooperative broker agreement exception, it would have said so. Instead, HUD invokes the 1999-1 policy statement for mortgage brokers by way of comparison, and then says that the same policy applies to other settlement service providers – you cannot split a fee (in this case the home warranty premium) unless you provide settlement services associated with the fee.

Also, it does not matter what settlement service is being marketed. The same RESPA Section 8 rule applies to all settlement services – it is illegal to pay a referral fee. There is only one Section 8(a) and 8(b) of RESPA – there is no special provision applying to real estate brokers referring business to home warranty companies. Here is what the policy statement says:

"D. Conclusion
Accordingly, HUD interprets section 8 of RESPA and HUD's regulations as these authorities apply to the compensation provided by home warranty companies to real estate brokers and agents as follows:
(1) A payment by an HWC for marketing services performed by real estate brokers or agents on behalf of the HWC that are directed to particular homebuyers or sellers is an illegal kickback for a referral under section 8;
(2) Depending upon the facts of a particular case, an HWC may compensate a real estate broker or agent for services when those services are actual, necessary and distinct from the primary services provided by the real estate broker or agent, and when those additional services are not nominal and are not services for which there is a duplicative charge; and
(3) The amount of compensation from the HWC that is permitted under section 8 for such additional services must be reasonably related to the value of those services and not include compensation for referrals of business."

Now I remove the references to HWC and real estate brokers, and make this policy statement generic (which is what the courts will do):

"D. Conclusion
Accordingly, HUD interprets section 8 of RESPA and HUD's regulations as these authorities apply to the compensation provided by settlement service providers to their referral sources as follows:
(1) A payment by a settlement service provider for marketing services performed by other entities or persons on behalf of the settlement service provider that are directed to particular homebuyers or sellers is an illegal kickback for a referral under section 8;
(2) Depending upon the facts of a particular case, a settlement service provider may compensate a person for services when those services are actual, necessary and distinct from the primary services provided by the person, and when those additional services are not nominal and are not services for which there is a duplicative charge; and
(3) The amount of compensation from the settlement service provider that is permitted under section 8 for such additional services must be reasonably related to the value of those services and not include compensation for referrals of business."

Finally, notice that HUD published this policy statement WITHOUT OFFERING A COMMENT PERIOD. What HUD is saying is that the 2008 letter that preceded the policy statement is binding, and there is no need to offer public comment on whatever informal policy statements HUD makes. This is HUD’s new policy, overturning the provision in Section 4(b) of Regulation X stating:

"(b) Unofficial interpretations; staff discretion. In response to requests for interpretation of matters not adequately covered by this part or by an official interpretation issued under paragraph (a)(1)(ii) of this section, unofficial staff interpretations may be provided at the discretion of HUD staff or counsel. Written requests for such interpretations should be directed to the address indicated in §3500.3. Such interpretations provide no protection under section 19(b) of RESPA (12 U.S.C. 2617(b)). Ordinarily, staff or counsel will not issue unofficial interpretations on matters adequately covered by this part or by official interpretations or commentaries issued under paragraph (a)(1)(ii) of this section."

You cannot bootstrap an informal position into a rule without public comment and Congressional review. That is what HUD is doing here.

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Submitted by Bruno Skopinich on July 13, 2010 - 4:58pm.

Realtors and lenders only have one or 2 pots to put their hands in... but now if we can only figure out a way to keep the politicians hands out of all the "Pots" out there.

They have hundreds of " Pots" to pick from.

I guess that is why they spend millions to be elected to a position that only pay 100- 150K a year:)

"Do as I say Not as I do"

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Submitted by Frank Chimento on July 21, 2010 - 8:06pm.

Is there a home warranty on the market worth the paper it is written on? Most Realtors I know, pay for the warranty themselves and "throw it in the deal" to help the buyer feel even better about their decision to purchase. Show me an agent that is obsessed with making money off a home warranty and I'll show you a bottom tiered agent.

The most successful agents in America don't have time to pay attention to home warranty referral fees. They're loss-leader products. It's the cell phone and minute plan. Here, I'll buy you a warranty, and you buy this house.

Major on the majors and leave the petty stuff for the part time agents and bottom feeders that won't be around in 12 months.

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