A Washington Mutual retail mortgage office in Southern California turned real estate agents into "a pipeline for loan applications" by paying them referral fees, according to a New York Times story detailing the lender’s rapid expansion during the housing boom.
Fearing they could be construed as illegal kickbacks, WaMu banned referral fees in 2006 but allowed a team of 20 loan agents at the company’s Downey branch to continue offering them, the Times reported.
The fees attracted real estate agents from all over Southern California, an anonymous former WaMu loan agent told the Times. JPMorgan Chase, which bought WaMu in September for $1.9 billion, would not comment on the company’s operations before the acquisition.
The Times said the story was based on interviews with two dozen former WaMu employees, mortgage brokers, real estate agents and appraisers in California, Florida, Illinois and Texas.
WaMu expanded its home lending with the purchase of subprime lender Long Beach Financial in 1999, and grew the number of WaMu retail branches by 70 percent between 2000 and 2003, the story said. Adjustable-rate mortgage (ARM) loans grew from about 25 percent of new home loans in 2003 to 70 percent by 2006.
WaMu’s Downey office, which specialized in selling option ARMs to Latinos who spoke little English and relied on advice from real estate brokers, originated nearly $1 billion worth of loans in 2004, the story said. The manager of the office acknowledged that referral fees were paid to real estate agents but said they were fully disclosed to borrowers.
Commenting on the story on Huffington Post, real estate investor and attorney Jim Randel said the referral fees "seem to be a clear violation of the Real Estate Settlement and Practices Act (RESPA)" and brought "shame on the real estate agents who took the money."
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