How agents, brokers can minimize RESPA risks
Think you’re immune from regulatory scrutiny? Recent litigation involving agents and teams suggests otherwise. But there’s a very simple way to avoid liability.
Key points:
- A class-action lawsuit against Zillow and three brokerages/teams includes claims of racketeering related to Zillow's mortgage business and agent referrals.
- The litigation reflects a broader problem: Industry professionals are prioritizing profits over homebuyers' best interests, setting themselves up for RESPA violations.
- The solution? Simply provide buyers with more than one option when offering lender recommendations.
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The views expressed in this column are solely those of the author.
The recent news of the Taylor v. Zillow class-action lawsuit being updated with racketeering charges should send a shudder through those in the industry who thought the virtual dissolution of the Consumer Financial Protection Bureau meant nobody was watching for RESPA violations.
The brokers and agents at Works Industries LLC, GK Properties and The Frano Team — some of the teams named in the lawsuit — must be stunned to find themselves drawn into this battle of titans.
I'm hearing from many real estate brokers who are worried they will be next, but there is a very simple way to mitigate risk when recommending lenders: Always go with two (or three).
Providing the name of just one lender to a homebuyer is an outrageous liability for agents and their brokers.
A dangerous trend
The housing affordability crisis is fast becoming a political hot potato and we all need to be on the right side of the solution.
While the Zillow lawsuit gets the big headlines, many powerful real estate industry players are showing a dangerous disregard for homebuyers' best interests when it comes to mortgages, and that is creating regulatory and reputational risk.
Real estate portals are pressuring agents who buy leads to embed the portal's mortgage products in all of their transactions.
Mortgage companies are becoming real estate brokers so they can operate search portals and own exclusive marketing channels. Affiliated business disclosure forms won't be a shield if customers overpay for those mortgages.
Lenders are engaging in sham mortgage joint ventures that generate almost all their production from a single real estate team.
The cumulative effect of these actions should be scary stuff to all of us in the industry, because the consequences will be broad.
How to minimize risk while supporting homebuyers
The good news? It's actually not that hard to lessen the legal risk.
RESPA is clear about the fiduciary compact that brokers and agents have with their customers: They must avoid "affirmative influence" in settlement services — that is, avoid recommending any single mortgage solution.
Luckily, this is eminently doable: Offer customers better and more choices. At a minimum, offer independent mortgage products side-by-side with an "in-house" mortgage solution. At Tomo Mortgage, we always tell clients to get two (or three) quotes.
Not only does this inoculate portals, brokers and agents from RESPA risk, it's the right thing for homebuyers. The agent rarely knows the customer's specific financial complexity, so how can they recommend a specific lender?
If an agent doesn't have a list of respected independent lenders to share, they can simply encourage the buyer to shop around offline and online.
Be part of the solution
This is a moment of change. It's time to take urgent action to lessen risk and amplify the benefits and trust we show customers. It's time for us to be part of the solution in this housing affordability crisis and not propagate high fees and high rates.
And we need to do it with empathy. At the end of the day, we should all be able to say that our actions are helping customers get into a great house at the best purchase price with a really competitive mortgage.
Greg Schwartz is the CEO and co-founder of Tomo Mortgage, where he leads with a customer-first approach to make the mortgage process simpler and more accessible for homebuyers. Prior to founding Tomo, Greg was a key executive at Zillow, overseeing strategy, sales and product development.