WASHINGTON -- New regulations drafted by the federal government would impose tough new limits on referral arrangements between realty brokers and lenders.
Included is a maximum fee of $250 for computerized mortgage services provided to consumers by real estate agents. The fee would have to be paid by the homebuyers in advance, irrespective of whether they ever actually obtained a mortgage with the agent's help.
The new rules have not been published officially by the Department of Housing and Urban Development, and may not emerge for weeks, according to department sources.
If adopted in their present form, the rules would affect several widely used computerized loan-origination (CLO) systems, the largest of which is Citicorp's "Mortgage Power" program. Computerized loan systems offer quick, electronic access to a "menu" of loan choices and rates. They may involve a single lender -- as in Citicorp's Mortgage Power --or a variety of firms, as in the 50-lender Home Mortgage Network.
Under the Citicorp program, homebuyers can be charged a fee equal to one-half percent of the mortgage amount they ultimately borrow. On a $200,000 loan, this would total $1,000 payable at settlement. The fee is paid to the real estate agency, homebuilder or mortgage broker participating in the Mortgage Power program as a loan originator.
For more than two years, the Mortgage Bankers Association of America and other lender trade groups have urged the federal government to restrict or eliminate "loan referral" systems that allow realty brokers to collect fees for helping originate mortgage loans. Brokers are compensated adequately through home-sale commissions, mortgage bankers argue, and have inevitable conflicts of interest when they also receive fees for aiming mortgage business to certain lenders.
The National Association of Realtors -- along with Citicorp, Sears' Coldwell Banker, Prudential and other large CLO sponsors -- have denied that such a conflict exists. Under federal rules, they say, all such fees must be fully disclosed to the consumer, must be voluntary, and must be for services rendered to homebuyers at their own request.
Mortgage bankers don't want to lose their own traditional fee income from homebuyers, brokers said, and are trying to hold back advances in computer technology that help consumers shop for loans.
Besides the amount of the maximum fee for real estate agents, the new rules would also clamp the first federal restrictions on the structure of computerized loan systems.
Starting one year from the date of publication of the rules, CLO systems used by real estate agents must be "equally open to all other lenders who wish to be on the system," and provide "fair" and "equitable" information on their loan offerings. To use an exclusive, single-lender program like Citicorp's, a realty broker would also have to provide consumers with a separate, non-exclusivemultilender computer system.
Agents also would be banned from collecting any fees through )) loan originations unless they demonstrate that they are performing "necessary, additional work beyond that normally performed in their broker-agent capacity."
The "mere listing of rates or filling out a typical application form," according to the draft rules, would not qualify for any compensation.
The regulations also would impose tight limits on real estate referral and business-steering relationships among subsidiaries or affiliatesof real estate firms in other fields. These include such services as property insurance, title insurance, banking, retailing and others.
They ban incentive fees and other "indirect" forms of compensation between, say, a financial services subsidiary of a large holding company that also owns real estate firms.
Sears and Prudential, for example, have diverse subsidiaries in financial and other business fields that could be hit hard by the new regulations.