FOR BROKERS: Ancillary Business
What to Do When...
You want to tap mortgage origination income.
BY ARTHUR J. BARRETT
Mary Kay McElmeel was rookie of the year at Century 21 Lake Viejo in Mission Viejo, Calif., in 1978, her first year in the business, and a top producer throughout the 1980s. But when she went solo a decade ago, adapting to life without the visibility of a national brand behind her, her income dropped to one-third of what she was earning during her peak years.
Her position improved last year when she tapped an additional source of income: arranging loans for buyers through an online mortgage banker GoLoan, based in Los Angeles. McElmeel last year coordinated four loans through the company, netting her origination fees of about $3,000 per loan. “It’s a nice chunk of change,” she says.
More than income, such a program can give salespeople at a small or mid-size company a chance to offer something close to the one-stop shopping packages offered by larger brokerages.
Under GoLoan’s model, practitioners prequalify borrowers and handle portions of the loan origination legwork and receive a commission in return. The prequalification and origination services your associates offer are key because, under Section 8 anti-kickback provisions in the federal Real Estate Settlement Procedures Act (RESPA), practitioners are prohibited from receiving anything of value from lenders, including fees or commissions, in exchange for referring loan business to them. To be legal, any payment between the lender or mortgage broker and the practitioner must fall within one of the exceptions to RESPA restrictions.
Specifically, practitioners can offer origination services on behalf of lenders, either as bona fide employees or as independent contractors, provided they also deliver additional services of value to the lender and receive compensation in an amount commensurate with the service performed. The U.S. Department of Housing and Urban Development, which enforces RESPA, codified those services in a 1999 statement of policy. Among them:
- Collecting borrowers’ financial information and pertinent documents
- Analyzing borrowers’ debt and income and prequalifying them for funding
- Educating borrowers on the homebuying and financing process
In the GoLoan model, practitioners are independent contractors and, to meet the “bona fide” IC test, assume responsibility for eight loan-origination functions:
1. Prequalifying borrowers
2. Reviewing loan options
3. Selecting the loan the client chooses
4. Opening escrow and title
5. Obtaining and faxing supporting documents
6. Discussing interest-rate options
7. Negotiating and locking in the rate
8. Attending close of escrow
Adding loan origination to your list of services can help you attract more customers, says Randy Smith, a broker-associate with RE/MAX Real Estate Consultants in LaQuinta, Calif., and a GoLoan originator. “When customers call, I ask them if they’re working with a lender,” he says. “If not, I explain that I can get them prequalified and get the loan set up, so when we find a house, we’re set to go.”
Not everyone likes the idea of practitioners pursuing mortgage origination fees. “Practitioners should be competent about the mortgage business so they can provide financial counseling to buyers,” says Jerry Stoffer, ABR®, CRS®, a sales associate with RE/MAX 200 Realty in Winter Park, Fla. “But if they’re trying to wear two hats, they could be spreading themselves thin.”
McElmeel says that hasn’t been a concern for her. “The online process is so quick and responsive it adds up to very little extra work,” she says. “As a salesperson, you’re already asking buyers about their financial situation; now you’re just taking the next step.”
ONLINE EXCLUSIVE
HUD rules on lender payments to practitioners
