The Anti-Kickback Rule - Payment or Receipt of Non-Approved Fees

Background

With the recent spate of enforcement actions surrounding kickbacks, take the time to re-visit your explicit policies and procedures surrounding the anti-kickback rules.

12/23/2024 - CFPB Sues Real Estate Firm for Referral Fees

4/30/2015 - Updated filing shows actual money penalties by participants
1/22/2015 - Baltimore CFPB Action
St. Louis CFPB Action
Kentucky CFPB Action
Baltimore Referral Fee Lawsuit

Kickbacks are a problem because they tend to inflate the cost of a transaction.

Kickbacks tend to inflate the cost to the consumer due to the fact that someone else has to get paid for the referral. 

Prohibited - Kickbacks and Referral Fees

Section 8(a) of RESPA prohibits anyone from giving or receiving a fee, kickback, or “anything of value” pursuant to an “agreement or understanding” for the referral of business related to the purchase or financing process. The purpose of the prohibition is to protect consumers from the payment of fees when no additional work is actually performed. Kickbacks tend to increase the cost of the transaction, since the borrower will have to be charged more in order to cover the cost of the referral fee.

All personnel should avoid even the appearance of accepting or paying for non-approved services.

An “Agreement or Understanding” does not have to be a formal agreement, but can be a verbal agreement or even an agreement established through a practice, pattern, or course of conduct.

Prohibited Payment – “Anything of Value”

Payments include, but are not limited to

A “Thing of Value” Money Discounts Commissions Salaries Stock Opportunities to participate in a money-making program Special or unusual banking terms Tickets to theater or sporting events Services of all types at special rates Trips and payments of another’s expenses

Prohibited - Fee Splitting 

Fee splitting is when a service provider inflates charges and splits the excess funds with another service provider in exchange for the referral of business.  This is tantamount to a kickback and is a prohibited practice.  Service providers may attempt to circumvent this prohibition by establishing joint ventures or entering into business arrangements that allow referrals between organizations and conceal the fee splitting arrangement.

Permitted – Approved Affiliated and Controlled Business Arrangements

In some cases, there can be fee splitting or referral fees paid under what is known as an “affiliated business arrangement”.  An affiliated business arrangement is where a person who refers settlement services has an “affiliate relationship” or “an ownership interest of more than one percent in a provider of settlement services.”

The payment of reasonable fees is acceptable as long as the relationship is disclosed to the borrower and the referrer actually performs a service – or somehow adds value.  The referral service provider may NOT be a REQUIRED provider of services, such as an appraiser or credit bureau that the lender must select.  An affiliate relationship structured simply to legitimize the payment of a fee is referred to as a “sham”. Affiliates must be a “Bona Fide Provider of Services” to receive a referral fee legally.

Approval Required - Desk Rental Arrangements

Because of the level of oversight, and the potential for the payment of desk rental to masquerade as payment for a referral, all Desk Rental Arrangements must be approved in advance. Provide the following:

·         Copy of the lease/rental agreement

·         Document market value of desk rental services through Craig’s list, square footage analysis or other verifiable source

Approval Required – Joint Marketing Arrangements

Similar to a Desk Rental, partnering with referral sources to advertise or market must also be evaluated for potential conflicts and approved by management. Particularly when this relates to commercial communication, the material must also be reviewed against the Provide:

·         Any advertising agreement

·         Copy of publication or proposed media

Approval Required - Marketing Vendors

Payments to marketing vendors, such as lead generation companies, may create problems if we base the payments on anything but the lead itself.  If there is a payment conditioned upon a certain criteria or threshold, such as confirmed application, underwriting approval or closing, the arrangement may be considered illegal.  For approval provide:

• Marketing Agreement
• Fee Schedule for Leads

In addition, the agreement and vendor must be approved to ensure the vendor complies with Fair Lending, Information Security, Customer Privacy and other consumer-facing regulation.

Approval Required - Payments to Counseling Agencies

Payment for services to a non-profit agencies for counseling services performed are permitted.  Provide:

• memorandum of understanding between the lender and the non-profit agency 
• establish how payments to vendor are not based on referrals .

Required Disclosures

·         Affiliated Business Arrangement Disclosure (AfBA) – if Applicable

·         Required Provider Disclosure – From LOS

·         Approved Settlement Services Provider List

Operating Areas Affected

·         Origination - Production

·         Compliance

Penalties for Non-Compliance

Penalties for violations of the anti-kickback provision include fines of up to $10,000 and up to one year in prison.

Warning Shots for Paid Referrals: Legitimate Violations at Heart of Prospect Lead Generation Program

Behind the headline splash - real violations

We have gotten used to the CFPB picking on things in the range of "technical violations" and announcing large penalties. This induces paranoia and an acceptance of the idea that, despite our best efforts, fines and penalties in the course of operations have become a "cost of doing business." In the Prospect Mortgage case, however, these incidents would be clear violations for even the uninitiated.

We recommend a review and audit of referral relationships and lead generation arrangements, but this finding doesn't mean abandoning balanced and compliant lead generation techniques. As a simple measure, if you find any "quid pro quo" activity, you probably have a violation.

Click here to read the entire consent order, which includes detailed findings.

1. An active referral, by itself, is not a violation. The fact that, in addition to marketing agreements, the agents referred business in great concentration raised suspicion that there were other elements at play.
2. Exclusively referring business is a referral red flag. A best practice for all referrals revolves around recommending at least 2 or 3 providers. This raised further suspicion.
3. Leads or referrals, by themselves, are not an indication of a kickback. Payment for a lead to an individual who has a financial interest in that lead - without an arm's length transaction - can point to a kickback.
4. Sliding scales, or evaluating the quality of a lead before making payment is a RED FLAG. So a lead that is unqualified being evaluated as less valuable than a lead that results in a closed loan is a "pay for performance" strategy and is prohibited.

5. Ultimately, it was easy for the CFPB to draw a straight line from the referral to the payment, particularly with the concentration of this activity.

Beyond this, though, some of the activities that called the arrangement into question would not be violations if they did not have the issue of payments associated with them. For instance, requiring the approval of a particular lender or lenders (such as those appearing on an approved list) does not constitute a kickback scenario. If the companies had not received per loan payments, then the idea of a reputable local lender re-qualifying prospects makes sense and is in both buyers' and sellers' interests.

Joint Venture and Co-Marketing Violations are Less Clear

Planet Mortgage Loan Servicing referrals to Prospect look like a legitimate fulfillment referral arrangement. However, because the payments were not based on standard services provided, but rather on a split of the fees that Prospect received, the ownership and activity tests should have been applied to make sure that these were not sham arrangements, simply for the purposes of generating a referral fee. There is nothing wrong with paying for services provided or fulfillment, nor is there a problem with joint ownership and risked capital splitting fees.

Perhaps the most troubling finding surrounds the penalties for joint marketing. So long as the parties share the actual cost (that the originator isn't paying for the ads on behalf of the agent), there is no prohibition on co-marketing. In this case, the decision of the CFPB seems to hinge on several e-mails which alluded to steering the customer as a consequence of the arrangement. 

MSA's are NOT Illegal - You Have to Look at the Circumstances

Here is the CFPB's cautionary memorandum on this topic. MSA's , they say, can be disguised as payments for referrals. Each situation has to be examined. If you look at our suggested policy on this matter, as reported in our January 2014 issue, you will see that management must review these arrangements to ensure that fees paid are commensurate with the value received - whether it is joint marketing, desk rental, or even affiliated business arrangements. 

"Quid Pro Quo" Arrangements at Heart of All Findings 

Many of these actions, in a vacuum, are not violations. In any review, focus not only on the written agreement, but exercise extra diligence beyond the paper documentation to see if the action causes any pressure or steering on the part of the consumer or other parties.

The payment of referral fees corrupts the customer's ability to evaluate whether they are receiving a fair offer by encouraging the use of providers whose costs are inflated by the need to pay referrals. Ultimately, the best prevention of these kinds of violations rests in a sales culture of referrals sourced through value-added relationships where lenders who provide the best service and pricing lead financing decisions. Value is also added by lenders who provide community services, such as home financing seminars, financial counseling and education, and who work in partnership with real estate sales professionals to promote transparency in their relationships. Refer three lenders or title companies, not just one. Let the borrower choose.

Small Commissions, High Costs, No Interest - At the Heart of the First-Time Buyer Problem

No reward for taking on small loans with lots of “headaches”

NAR study shows, after tax incentive expired, first time

homeownership plunged. (NAR 2014)

Theories abound over the causes for first-time and start-up buyers' lack of participation in the housing market. Analysts point to too much student debt, constricted underwriting, and housing prices outpacing affordability. Sociologists say people prefer to rent. The NAR study, which identifies the decline, refutes these propositions. Commonly cited theories ignore the reality of the current mortgage production landscape. Loan officers and mortgage companies have a negative incentive to make loans to a large segment of the first time buyer population. Entry level loans require far more work than other applications. Smaller loan sizes mean smaller revenues for lenders and smaller commissions for loan officers. A look at how regulatory price controls, fee caps and tiered pricing prohibitions affect income and profitability explain the real problem.

Originator Compensation Caps - Another Example of Price Control Failure

Basic economic principles dictate that price controls distort markets and create disincentives. When the Carter administration implemented price controls on consumer goods in an attempt to mitigate the effects of inflation, the supplies of milk predictably dried up. When New York City implemented rent controls to limit the rate of rent growth, the supply of existing rental housing constricted. This same principle goes into effect when the maximum fee on a mortgage loan doesn't cover the structural costs of production.

Fair Hourly Wage Comparison - Originator Compensation 

While many mortgage loan originators strive to earn six figure incomes, earnings at that level normally accrue only to top producers or those fortunate enough to originate in areas of high loan balances. According to the Bureau of Labor Statistics, the 2012 Median Pay for mortgage loan officer was $59,820 per year or $28.76 per hour. Loan officers normally receive commissions, not a salary, so they make business decisions about how to maximize the value of their time.  First time home buyers require much more work than move-up/experienced borrowers.

Figure 1: This shows the amount of time a loan officer spends to originate a first time buyer loan compared to the time spent working with an experienced borrower.  Even if the hours get attributed differently, no loan officer would argue that a first time borrower is LESS work. 

Due to the extra number of hours spent sourcing and processing loans to entry-level or first time borrowers, loan officers have an incentive to avoid these loans and focus on larger loans to more sophisticated and well-qualified borrowers.  Figure 1 reflects the rationale for avoiding loans to first time buyers.  The reward is comparatively low for the amount of work.

The fixed cost nature of the mortgage business makes these loans unprofitable for mortgage brokerage companies, but particularly for mortgage lenders whose fixed infrastructure costs and compliance costs tend to be much higher.  Figure 2 shows that for a $100,000 loan, with a 3% fee structure, these loans actually lose money for the firms.  (Per loan cost basis varies dependent on loan volumes - higher loan volumes bring per loan costs down, but low volumes drive per loan cost up.)

Figure 2: Commission income and loan profitability for small loans decreases markedly. Cost source: Broker - cost Analysis; Lender  (Finklestein 2014) 

The current regulatory system creates massive disincentive for loan originators who work for lenders, because their compensation cannot vary as a result of loan features. In Figure 2, a loan originator who makes an industry standard commission of 60 basis points, working on a ends up with an hourly compensation rate of $12 an hour on small loans for first time buyers.  This, by itself, can explain the structural problems related to stimulating the housing market.

The inflexibility created by Loan Originator Compensation Rule and Anti-Steering Rules, prevents lenders and brokers from adjusting loan pricing to offset the cost of making small loans. These rules impact the compensation of loan officers who work for lenders even more dramatically than brokers, so when you add the higher time investment required for first time buyers, loan officers working for lenders have the greatest disincentive to make these loans. Lenders account for 89% of all mortgage production (Bancroft 2014)

HPML Impact on Small Loans Aggravates Supply Constriction

The Higher Priced Mortgage Loan (HPML) Rule further restricts loans that exceed rate thresholds by increasing lender liability, documentation requirements, scrutiny of appraisals, and limiting the flexibility of underwriting. Many loans with small down payments already trigger the HPML thresholds by virtue of the mortgage insurance costs. The rule's thresholds further limit the fees that a lender can charge to offset the cost of originating smaller loans.

Conclusion - Eliminating Price Controls May Represent Only Solution

Figure 3: While the percentage of buyers purchasing new

homes has declined, the percentage of buyers purchasing

new homes has increased.  This shows builders have adapted

to the new environment.

An extemporaneous loan officer survey reveals that loan officers will only pursue small loans to first time buyers when a referral source specifically requests it. In this situation, these small loans originated at a loss ride for free on the company's profits from larger loans.  This model forces lenders to take the same approach as hospitals who accept patients without insurance. We have to treat you, but we aren't happy about it.

Examining several examples of home builders who specialize in building product for the first time buyer shows they have developed their lending systems to specifically accommodate this model, and rationalize the loan production losses with the profits on the home sale. Figure 3 shows how the the creativity and natural balance in a market where businesses innovate to overcome problems. Builders can focus on a particular segment and design a business model that meets a particular need.  However, the market as a whole cannot overcome a set of regulatory rules designed to affect the entire market.

This ironic situation, where the regulatory structure actually hurts the population it intended to protect, hurts the markets which need financing the most.  The real estate markets which have failed to recover from the 2008 crash exhibit a large percentage of loans impacted by this effect. The constriction on financing exacerbates the slowness of the recovery.

While the issue requires further data analysis, common sense supports this hypothesis. Only loan fee de-regulation will reverse the declining share of first time buyers in the market. Without this, the housing market's regulatory structural defect will prevent any broad, long term resurgence in real estate.

Author:  Thomas Morgan

Citations
Bancroft, John.  Mortgage Brokers Gained Market Share in Second Quarter, At Least on GSE Loans. Inside Mortgage Finance. July 10, 2014
Berndt, Antje, Hollifield, Burton and Sand, Patrik. What Broker Charges Reveal about Mortgage Credit Risk, SEC http://www.sec.gov/divisions/riskfin/seminar/berndt091312.pdf. June 2012
Finklestein, Brad. Companies began to increase compliance staff to deal with the new rules and that helped to increase the net cost to originate to $5,171 per loan in the fourth quarter from $4,573 in the third quarter. National Mortgage News, April 2014.
Lautz, Jessica. 2014 Profile of Buyers and Sellers. National Association of REALTORS®, October 30, 2014
National Association of Homebuilders, Housing Market Survey 2012

Broker v. Lender: The Drive to Mini-Correspondent - Rational Response or Over-Reaction?

The question over Broker Compensation causing loans to be classified as HPML has caused some disruption in the business. It is at the heart of a movement driving current mortgage brokers to adopt the lender business model by becoming "mini-correspondents" to avoid adverse selection. The question posed: Is this a real cause or imagined? If it is real, is it worth the correspondent risk for brokers?

The Issue

On the face of it, the confluence of two rules does appear to create a problem. The first rule - The Truth-in-Lending Higher Priced Mortgage Loan rule (HPML) - requires that loans exceeding a certain interest rate have a number of consumer protections. The interest rate trigger which drives this provision involves calculating the Annual Percentage Rate (APR) which takes into account upfront and monthly lender fees. This calculation is compared to the Average Prime Offered Rate (APOR) which is a WEEKLY index compiled by Freddie Mac in what's known as the Primary Mortgage Market Survey. The rule considers any loan exceeding this calculation by 1.5% a Higher Priced Mortgage Loan requiring extra due diligence and disclosure. To this point all mortgage industry participants must play by the same rules. The conflict occurs when the Truth-in-Lending Originator Compensation Rule is considered.


The second rule creates the problem. The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank) initiated reforms to the Truth-in-Lending Act, known as the Anti-Steering Rule (LO Comp). This rule constrained loan originator compensation to 3% of the loan amount.

In reality, a very small sliver of loans could create a comparative disadvantage. To start with, only those in which the loan starts out as marginally HPML triggered could be an issue. This is the case when you have PMI, MIP or a lot of overlays. In these cases, lenders will run a nearly equal risk of triggering HPML requirements. Once you do have this higher APR present, then you must more carefully measure the transaction. Only then do you have to consider the magnitude of the broker's compensation and its effect on APR - the larger the broker's compensation, the more likely to trigger HPML relative to the same lender's transaction.

Consequences - Limited Choices for Consumers = Higher Costs

For consumers, the compliance risk associated with HPML means fewer lenders willingly offer these loans. Brokers, who can provide alternatives and drive down costs, may be selected out of comparison if the transaction falls into the narrow range of transactions that would be considered HPML if originated by a broker but not by a lender.

In this case you can see how, with a higher APR to start with, the liklihood of triggering HPML requirements is exacerbated by the inclusion of the originator's compensation.  This inclusion exaggerates the APR of the broker originated transaction, which could limit borrower choices in seeking home financing, ultimately costing consumers more.  

But how much of an injury is this?

Take a rational view of the HPML requirements and you realize these already exist in the non-HPML world. Most lenders require escrows, particularly on loans with MIP or PMI, which are the loans most likely to be HPML. We always have to give borrowers copies of appraisals. We already consider ability to repay on all transactions. The limitations on loan types - no prepayment penalties, negative amortization or balloons, are already considered for most of the industry's loans. How is a broker limited if a loan should be categorized as HPML? The truth: the broker doesn't experience a negative impact.

The Rush to Correspondent

As a mortgage service provider, there are legitimate reasons to elevate your business to correspondent:

• An investor offering a specialty product ONLY through correspondent channel 
• The ability to control generating closing documents locally and improve service delivery 

But when measured against the substantial risks correspondents take, is it really worth it simply to avoid this one small regulatory wrinkle? The NAMB has provided a great TWO PAGE overview of the risks associated with small firms taking on correspondent responsibilities.

• Repurchase risk 
• Audit risk 
• Compliance risk 
• Liquidity risk 

Slow Down There Big Fella! 

For brokers the APOR/APR issue seems to be problematic, but the broker starts at a lower APR then adds fees. How likely are you to trigger HPML on most transactions that you wouldn't trigger if you were a lender? Small chance - you have same overlays/MI, etc. It is not worth taking on correspondent risk to avoid the relatively rare occasion when a broker transaction would carry an APR so much higher than a lender transaction to trigger HPML. Plus, borrower paid transactions are excluded from this entire debate. Plus, what really happens when a loan becomes HPML? You can't have prepays balloons or negam, you have to qualify, and you have to give the borrower a copy of the appraisal, right? WE DO THAT ANYWAY!

Tell me if I'm wrong. The furor is causing a lot of disruption among small brokers. Much of this concern has been caused by wholesalers who want to differentiate their service offering, so have stirred the pot over this debate.  Warehouse lenders have also chimed in on the importance of having a warehouse line.

Holy Secondary Conflict, Batman!

There are bigger problems with the HPML rule. APOR is set once a week. We have seen major fluctuations in pricing to the upside, and when this happens simple market movement can cause EVERY LOAN IN YOUR PIPELINE to be HPML. Maybe the day is here where we simply assume each loan will be HPML, and move forward from there. We are doing it anyway.

Additional Resources

Bankers Online HPML Checklist - You can document that you determined whether a loan was HPML or not, and then what you did to comply. 

Broker v. Banker: Regulation Forces Consumers to Choose Higher Priced Loan Options

Double Counting of Fees and Misleading Disclosure Rules Lead Consumers to Choose Higher Priced Mortgage Options

Due to "double counting" of fees under the Dodd/Frank final rule, published in the Federal Register June 12, 2013, effective January 10, 2014, consumers will be driven to choose higher priced loan options when selecting between independent originators and lenders.  "Double counting" in this description, defines what occurs when compensation is included in the rate AND the concurrent originator compensation for the purposes of calculating disclosures and regulatory limits.  

Higher Rates for Consumers

This example is based on 1.5% loan originator compensation.  While the Dodd-Frank Rule intends to create transparency, it only impacts loans originated by a small percentage of originators, leading consumers to choose higher rate mortgages.  The mathematics of this issue are discussed in detail on the IMMAAG website here.

Consumer confusion causes the customer to choose between the higher of two identical loans.   This scenario offers a moderate comparison of the costs; at 5%, the total payments are $347,860 while at 5.125% the total payments are $352,847 - a difference of $4,967 in extra costs to the borrower.

Higher Fees for Consumers

The mathematics of the compensation rule and the challenges posed are discussed in detail on the www.thefutureofmortgagelending.com website

Consumers are forced to choose higher priced mortgage options under the new rules.  This is required by the disclosure of originator compensation under the CFPB Final Rule, and limits of compensation under Qualified Mortgage Standards (Truth-in-Lending Act, Regulation Z), by including non-borrower paid costs in the disclosures and limits.

The Devil is in the Details

These illustrations represent the facts and not exaggerations.  As clear examples of unintended consequences, one can see that the issue results from misunderstanding the technical details of the workings of the mortgage business.  In attempting to regulate every aspect of the mortgage industry at a granular level, the well-meaning Congress and the Consumer Financial Protection Bureau have lost sight of their goal: "How do we help consumers?"  

"If it Ain't Broke..."

The pre- Dodd-Frank Reform disclosures did this effectively for 50 years.  The pre-2010 Good Faith Estimate allowed consumers to see the interest rate, the loan terms and the bottom line costs.  A consumer could choose between two competing offers and decide which one suited his or her needs best. 

One reform helped all industry participants.  HUD's "Lock-in" of closing costs, once disclosed, ended the practice of giving one disclosure initially that bore no resemblance to the final closing costs.  Congress, HUD, Sean Donovan, and the CFPB could have stopped there and declared victory.  

Today's disclosures do more to conceal costs than they do to illustrate them. The 2010 Good Faith Estimate does not provide a breakdown of the total monthly payment.  It includes costs that the borrower or buyer does not pay, and excludes costs and fees that borrowers do pay.  The new Truth-in-Lending disclosure rules require advanced algebra to understand.  I am a mortgage industry professional, an instructor and author - I have a hard time understanding the rules.  How does this help consumers?  

Congress has an opportunity to roll-back these provisions before they become effective.  Contact your Congressman and Senator and express your disappointment at the new rules.  If he or she is an advocate of transparency and fairness, they will support HR 1077 and S.949.  In addition, they should advocate for the abolition of the Qualified Mortgage under Dodd-Frank, as it simply costs consumers too much money.  

In Textbook First Case, CFPB Shows its Willingness to Prosecute Even Small RESPA Anti-Kickback Violations

Click on this image or this link to read the entire 

consent order detailing the kickback scheme 

employed in Texas

In pursuing, investigating and prosecuting a case involving a relatively small builder in Texas, the Consumer Financial Protection Bureau (CFPB) finally puts some teeth into one of the most pervasive corruption schemes in real estate.  Kickbacks, where one party pays a fee for the referral of business, purportedly occur with high regularity according to ad-hoc interviews I have conducted with mortgage industry participants.  If you believe that the small size of your company or number of transactions makes you too small small of a fish to appear of the radar of the CFPB, perhaps you should think again.

This mechanism of policing is reminiscent of the "Broken Windows"1 policies of many urban police departments when attempting to corral the escalation of crime.  In this case the CFPB is cracking down on smaller schemes to stop the pervasive use of shams to avoid the law.

When I was breaking into the mortgage business as a loan originator I was regularly offered business conditioned upon matching the referral fee my competitors paid.  Fortunately for me, I worked on a very thin margin and the amounts that these individuals demanded often exceeded what I would receive as compensation. But this illustrates the moral and legal problem with the Kickback Scheme:  You have to increase your fees to cover the cost of the payment.  Who pays for the referral fee?  Though indirectly, the borrower pays, through a higher rate or fees charged to offset the higher commission needed to pay the referral.

Anyone who has taken a continuing education course in mortgage lending knows that the creation of affiliated business referral business, while legal, must provide a legitimate service and add value to a transaction.  HUD developed a ten point test to determine if an affiliated business was legitimate or a "sham"; an artifice designed to serve as a mechanism for kickbacks.

When you read the findings in this case it would be clear, even to a novice, that the Texas builder's mortgage subsidiary was a sham.  It had no employees, did not advertise, did not maintain a separate office and the only business it ever conducted consisted of the referrals the builder made.

The saddest part of stories like this is that, in addition to paying a higher price, these borrowers and real estate professionals were deprived of the real value of the loan officer's services.  When I conduct CE or PE licensing, business development or new loan originator training classes I always talk about the value the loan originator adds to the business of his or her referral sources:

1. A good loan officer is a pipeline manager: By qualifying prospects, I save my real estate/builder referral source's time by identifying borrowers who can go purchase now so he or she can focus on a qualified customer.  This is his or her current business.  Many loan originators stop here.  More importantly, I can work with those customers who are not capable of acting right now and make sure they get the counseling and help they need to achieve their goals in the future.  This is their pipeline of future business.  
2. A good loan officer helps you close more business: Not just getting to closing, but getting the customer to commit to a transaction as part of the sales process.  Often, the major impediment to a customer writing a contract is fear of the unknown.  By providing loan options counseling and exposing all of the costs the customer has less fear of the unknown, allowing him or her to write an offer with confidence.  
3. A good loan officer is a business development resource: For all of the business loan originators develop through referral sources, between 40 and 80% of a loan officer's referrals are self generated from his or her own networks and book of business.  We refer our for sale by owner customers and first time buyers to our agents. We refer. A single real estate transaction referral is worth far more monetarily than an 1/2 point kickback, it is much more sustainable relationship as it is built on trust, and it doesn't cost the customer a thing.  

Thinking back to my early days as a loan officer and the kickbacks solicited from me, I noticed a certain character to the individuals and businesses engaged in these practices.  They represented the margins and lower echelons of real estate and often seemed to struggle for survival.  On further reflection I am even happier that I did not participate in this practice because if these players were that desperate for 1/2 a point what else would they do (like perpetrate fraud) to earn money?  It's important to evaluate your business partners beyond one transaction.  Failing to do so might land you in jail.

1  The Broken Windows theory was introduced in a 1982 article by social scientists James Q. Wilson and George L. Kelling. The theory states that maintaining and monitoring urban environments in a well-ordered condition may stop further vandalism and escalation into more serious crime.

RESPA 2010 Update - Understanding “Changed Circumstances”

The intent of the new GFE regulation is to require a FIRM cost estimate.  Once issued a GFE cannot change unless there are “changed circumstances.”  This eliminates the “bait and switch”.

The original information cannot be a basis for the change, unless it is later found inaccurate.  If there is a changed circumstance, then it can only change that aspect of the costs that it affects; i.e.: title problem > title insurance or credit score > interest rate.  Any changes have to be issued within 3 days of discovery – by whoever discovers the change.  The lender or broker can revise the GFE, so communication is crucial.  Retain documents that relate to the change for 3 years.

Not Changed Circumstances	Maybe, depending	Yes
·         * Any accurate information provided prior to GFE borrower ·         * Broker issued GFE inconsistent with wholesaler’s ·         * No property address at application ·         * Broker changes from one investor to another ·         * Market changes	·         * Borrower delays closing ·         * Original vendor goes out of business	·         * Acts of God, war, disaster, emergency ·         * Borrower changed: credit quality, loan amount, property value ·         * New information ·         * MIP/PMI factors changed ·         * Credit policy/Regulatory change ·         * Incorrect legal address initially supplied ·         * Undisclosed title or property issues ·         * Borrower changes occupancy status ·         * Borrower selects POA closing ·         * AVM – “No hit” ·         * Credit score change