Note: The content below about broker to broker is under review and still being developed.
Checking the computerized loan origination marketplace today, the rules for brokers who now want to offer mortgage services look largely like this:
- One buyer cannot be given preference over another because of the decision to obtain or not obtain financing from a broker.
- State rules may impact the ability of brokers to provide services and collect fees. For details, speak with legal counsel.
- Consumers must have a choice of loans and lenders -- the more the better.
- Naked referrals are forbidden.
- Reasonable fees for services are allowed.
- The broker's activities as a loan originator must be fully disclosed.
- A buyer cannot be required to use a given lender or loan source as a condition of purchasing a property.
If you have good credit and need conventional, portfolio, VA, or FHA financing the process is much faster than in the past because of such technology. The Internet allows brokers and consumers to computerized loan origination systems and look for mortgage programs on thousands of sites.
While there was once a time when computers were exotic -- think of those CLOs -- that's not the case today. Also new is the emergence of software which allow many loans, but not all, to be processed more-or-less automatically.
Combine changing rule interpretations and the emergence of the Internet with new technologies and the result is that realty brokers have a growing ability to generate a computerized loan origination system. For consumers, access to more loan sources should be seen as a positive advance. The result is that realty brokers are increasingly involved in the loan origination process.
What's really happened is that much of the lending process has been automated, the Internet is bringing more information to the public, some consumers are looking for "one-stop" shopping, and HUD's view of a CLO is what federal rules allow has evolved. And for buyer/borrowers who want "one-stop" shopping, such arrangements can hold value.
In essence, these are deals where the realty broker tells a lender that buyer Smith needs a computerized loan origination in return. To this day naked referrals -- a cute term for kickbacks -- are banned by RESPA. Under the 1974 Real Estate Settlement and Procedures Act, known generally as RESPA, realty brokers are not allowed to make so-called "naked referrals."
In 1992 HUD added disclosure requirements and an obligation to offer loans from a variety of sources and by the mid-1990s lenders could place CLOs -- How to get Computerized Loan Origination systems -- in broker offices. But what would happen if a real estate broker performed services needed for the production of a loan? Unlike a naked referral, actual work is being done in such cases.
In 1984, HUD determined that under RESPA brokers could be paid fair value for the use of their facilities while in 1986 HUD said realty brokers could charge for loan origination services.
The catch was that to this point, HUD said only borrowers could pay real estate brokers for lending services -- it didn't say lenders could pay such fees.
Such payments, however, must reasonably reflect the value of the computerized origination and what the broker contributes to the lending process. Today it's possible for brokers to earn loan origination fees when they provide something of value, perhaps the use of a facility or the provision of goods and services. In 1996, however, HUD agreed that brokers could be compensated for loan origination services by lenders if certain conditions were met.
What services can be compensated? HUD lists 14 specific items, but they generally can be boiled down into five categories:
Schedule closing and attend settlement.
Verify employment, credit, and other data as underwriters require
Order appraisal and title services.
Discuss loan options with consumers and prequalify applicants.
Take the loan application and submit loan packages for underwriting.
Contact the MBS Group today about a computerized loan origination system
