In light of recent volatility with mortgage interest rates, real estate agents ought to consider best practices in regard to “advertising,” which can include posting about rates on social media or holding yourself out as being able to make a loan.
Let’s start with the definition of a “loan originator” from The Dodd-Frank Act. A loan originator is “an organization or individual that for compensation or other monetary gain performs loan origination activities.”
As far as those responsibilities go, they include “taking an application, offering credit terms, negotiating credit terms on behalf of a consumer, obtaining an extension of credit for a consumer, or referring a consumer to a loan originator or creditor.” You can read more of the very long and detailed definition here.
However, according to the Consumer Financial Protection Bureau, this does not include a person who “performs only real estate brokerage activities and is licensed or registered in accordance with applicable state law, unless such person is compensated by a creditor or loan originator or by any agent of such creditor or loan originator for a particular consumer credit transaction subject to this section.”
To provide even clearer guidelines, let’s answer a few common questions.
With regard to the definition of a loan originator, is it ever OK for a real estate agent to advertise interest rates or loan programs?
Only licensed loan originators and mortgage brokers, lenders, depository banks or credit unions should advertise loan programs. The definition of “advertise” includes holding oneself out as being able to make a loan. This includes all forms of advertising including social media.
What about co-advertising with a lender?
Who is paying for the advertising? If the loan originator is paying for any portion of the co-advertising, then the real estate agent is directly or indirectly “receiving compensation from a lender” in exchange for a referrals.
Ask the loan originator to provide written confirmation that all co-advertising has been approved by the lender’s compliance and legal department. If the lender does not have a compliance and legal counsel, this is a massive red flag, and I don’t know why you’re referring consumers to that company.
If a loan originator is not willing to provide such written assurance, real estate agents should accept the risk of heightened liability that the co-advertising could violate anti-kickback provisions of RESPA, Section 8.
Real estate agents should always hire their own attorney for legal advice on entering into any co-marketing agreement. Don’t want to pay for an attorney now? Then plan to pay for an attorney later: Take a look at the Consumer Financial Protection Bureau’s 2015 RESPA Compliance and Marketing Services Agreements.
In the cases below, real estate agents were compensated directly or indirectly by the lender:
- CFPB consent order: RE/MAX Gold Coast
- CFPB orders Prospect Mortgage to pay $3.5 million fine for illegal kickback scheme. Real estate brokers and mortgage servicer that took kickbacks from Prospect were also ordered to pay $495,000.
- CFPB consent order: Willamette Legacy DBA Keller Williams Mid-Willamette Valley
What if I use to be a loan originator a long time ago and know the answers to the questions my homebuyers are asking?
Real estate agents have a serious duty to provide clients with accurate and current information. Are you currently a licensed loan originator? If not, refer questions that require a loan originator license to a person who has an active license and is employed by a licensed mortgage broker, lender, depository bank or credit union.
I know you’re trying to be helpful and demonstrate knowledge, but mortgage lending laws change frequently.
If you’re still not convinced that real estate agents should stop advertising loan programs and quoting mortgage rates and fees, consider these examples of loan originators advertising real estate commissions:
- “Did you know that real estate commissions are at all-time historic lows? Contact me, loan originator, for a referral to a real estate agent with the lowest possible commission.”
- “Contact me, loan originator, for analysis on how your real estate agent’s commission is hidden in the sales price and therefore, the price of the home.”
- “I, loan originator, will help you understand how to negotiate paying a lower real estate commission so you don’t have to pay it every month, in the form of a slightly higher sales price which translates to a slightly higher payment over the life of the loan. Look at these spreadsheets and graphs.”
Loan originators originate loans. Real estate agents sell houses. Good boundaries are needed every day and especially during these volatile times.
You can check the status of a loan originator license with the Nationwide Mortgage Licensing System.
Jillayne Schlicke is the CEO of CE Forward, Inc., which offers consulting services in a variety of areas, including compliance, mortgage lending law, mortgage fraud, ethics and communications.