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This Marketing Arrangement Smells Like Trouble

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Question: 
We are considering a relationship with a non-affiliated real estate broker. Here's how it works: If a homebuyer purchases a home through this broker and then finances the loan with us, the customer will get a $500 reduction in real estate commissions from the broker and a $500 credit from us toward our typical closing costs. We are one of nine banks that are being offered this opportunity brought to us by the broker. No money changes hands between us and the broker. If the buyer does not use one of the nine banks, they don't get the commission reduction, and if they don't buy their home through that broker, we will not give a discount. Do we have a potential violation of Section 8 of RESPA if we participate? The definition of "thing of value" includes the "the opportunity to participate in a money-making program." A referral "includes any oral or written action directed to a person which has the effect of affirmatively influencing the selection by any person of a provider of a settlement service or business incident to or part of a settlement service when such person will pay for such settlement service or business incident thereto or pay a charge attributable in whole or in part to such settlement service or business." It seems that we may meet both of these definitions, but I'm not sure if I'm misinterpreting or just plain missing some important exclusions.
Answer: 

My thoughts.

  1. No section 8 problem - the borrower is getting the thing of value. As you said no money exchanges between you and the broker.
  2. I'd be concerned about "steering".
  3. Since you receive nothing of value from the broker - what is the reasoning for only offering the discount to applicants from the broker? Especially if the applicants are more "up-scale" applicants and your other applicants are "low-scale" applicants.
  4. What kind of back-lash will result when the other brokers find out about the deal?
  5. Most importantly, what kind of customer (the ones that didn't use this broker or any broker for that matter) back-lash will result when they find out abut the deal?

First published on BankersOnline.com 11/29/04

First published on 11/29/2004

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