Proposals attempt to create fair mortgage market

Part 3: The scoop on referral fees

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(This is Part 3 of a three-part series. See Part 1 and Part 2.) Q: "What should be done about high settlement costs and referral fees in the home mortgage market?" In previous articles, I made the point that both high settlement costs and referral fees arise out of referral power--the power to direct a client to a specific vendor--that is pervasive in the home mortgage market. Congress attempted to deal with the problem in 1974 by passing the Real Estate Settlement Procedures Act (RESPA), which among other things, made referral fees paid in connection with real estate transactions illegal. But RESPA did nothing about referral power. Eliminating referral fees by law, assuming it is possible, which it isn't, would no more reduce settlement costs than putting a match under the thermometer will warm the room. Consider: a consumer (C) is required to purchase a service and looks to referrer (R), who directs him to service provider (S). S prices the service well above the lowest price he wou...