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Special Financing Supplement:
Modest Incomes, Big Dreams
Counseling Homebuyers to Succeed
Choosing a Lender
Credit Scoring
Cross-selling Mortgage Financing
| | BY DANIEL H. JACOBS
Looking for a way to boost your bottom line?
Cross-selling mortgage financing may be the way to go. This mortgage origination innovation enables you generate additional income and distinguish yourself from your competitors.
That’s especially important in these slower economic times because offering added value to your services can help you capture a greater share of a shrinking sales pie.
Nor is it difficult to get started. But you must make sure you do it in compliance with federal regulations. But even if mortgage origination isn’t for you, given the speed at which this trend is growing, you can’t afford not to know what cross-selling mortgages is all about.
Why Originate Mortgages?
Cross-selling mortgages enables you to provide buyers more services and add transaction efficiencies by eliminating the third-party loan officer. What’s more, you get paid the commission that the loan officer would normally make.
Take this concept to the next level. With a strategic marketing plan, you can also ensure a steady flow of refinance transactions from previous clients, which not only offers you an additional source of income, but allows you the chance to work on a financial transaction with a familiar client and obtain point-of-service referrals to other homebuyers.
What About Compliance?
As a general matter, originating mortgages for lenders can offer advantages to you and your clients, but the practice must be done in strict compliance with the federal consumer-protection law, the Real Estate Settlement Procedures Act.
First and foremost, cross-selling mortgages is only an option for conventional mortgage loans. The practice isn’t allowed for FHA loans. For conventional loans, though, the opportunity can be as good as gold – as long as your relationship with the lender is structured in accordance with RESPA.
As Washington, D.C., attorney Paul Mondor points out, under “Regulation X, Section 8 of RESPA permits an employer to pay its own employees for any referral activities. The relevant regulation is specifically at 24 CFR 3500.14(g)(1)(vii). This regulation permits mortgage companies to hire real estate practitioners as bona fide employees and pay them for loan origination work.”
What’s key to staying in compliance is that practitioners do more than just make a referral to the mortgage company. Among other things, you must be made a part-time employee of the lender. That means you must apply for the position and be hired. Lender requirements differ, but some companies may require that you have at least one year in the real estate business so that you can demonstrate basic knowledge of the mortgage industry through your past work with buyers.
At the same time, it must be made clear that your employment isn’t just a means to get around RESPA.
“HUD (which oversees the enforcement of RESPA) will look for evidence that an employee is not an employee solely for the purpose of using this provision to evade the intent of RESPA,” says Mondor, “thus the ‘bona fide’ gloss that HUD supplies when interpreting the quoted language.”
Among other things, the intent of RESPA is to protect consumers against unnecessary fees and require disclosure of relationships between lenders and those referring them business.
What all this means is that you must perform more duties than calling loan officers and telling them a client’s name and phone number. Rather, you must take the loan application, pull a credit report, present loan options and disclosures to the borrower for signature, and keep the borrower updated of the loan’s status.
As it is, most practitioners are already involved with the buyer during the mortgage process and are consulting in a meaningful and effective way with the buyer in helping to facilitate the transaction. Of course, once you work for the lender, you must be sure to provide a special dual-capacity relationship disclosure to the borrower immediately upon loan application.
What about State Rules?
One benefit of becoming a bona fide originator of lender is the absence of separate bonding and licensing requirements. As long as you’re playing a bona fide role in the loan origination process as an employee of a licensed mortgage company, you don’t have to go through the effort of becoming a bonded and licensed mortgage provider in your own right. The lenders have already done that, and its “originators” can work under its license; the mortgage company bears all responsibility and liability for problems.
But note that different states have different requirements for cross-selling originators. A few states require lenders to put individual originators through annual continuing education. And a handful of states prohibit real estate practitioners from originating the loan for the same person they are selling a home to. In those cases, they need to create a partner in their office and do each other’s loans.
What’s Required?
Different mortgage companies require practitioners to originate mortgages in different capacities and to develop different levels of expertise. At Empire Equity Group, the company I represent, practitioners who become a realty financial specialist must read and understand the RFS training manual. To help them do that, we make available a liaison that can provide guidance as needed.
To keep you in the loop at all times, the company offers real-time loan status via e-mail to your PC, PDA, or pager-digital phone every time the loan status changes. That means you get notified every time something changes in the loan applicant’s file throughout the process, such as when the loan is pre-approved, the appraisal is received, or an updated pay stub is required.
Similar programs are offered by other companies, including California-based IndyMac Bank and New Jersey’s Northeast Mortgage Corp., although each company requires a different level of work by the practitioner-originator and offers a different level of automation and real-person support.
None of these companies requires the practitioner to learn all there is to know about originating mortgages. Instead, they help the practitioner through various steps in the origination process as needed.
How Much Can You Make?
Different mortgage companies pay different fees for different services performed by the practitioner. In general, you should be able to offer competitive interest rates and still add about 30 percent to your sales commissions through the additional service.
So, is cross-selling mortgages right for you? In an age when banks are cross-selling insurance, securities, retirement services, and even stamps at ATM machines, the time to look at cross-selling mortgages is here.
Some homebuyers prefer one-stop shopping, and look to the real estate practitioner to be their primary point of contact. At the same time, it’s becoming clear that the Internet isn’t moving in to replace mortgage originators as tech executives once touted. Buyers still want to talk to real people about mortgages. That puts the ball in your court.
Daniel H. Jacobs is vice president of business development for Empire Equity Group, Inc., Charlotte, N.C. You can reach him at 704/926-6104. | | |
