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 brokers. The fee would have to be paid by the home buyers 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 (HUD), and may not emerge for weeks, according to department sources. A copy of the 135-page draft was obtained here.If adopted in their present form, the rules would severely limit several widely used computerized loan origination systems (CLOs), the largest of which is Citicorp's ``Mortgage Power' program. Computerized loan systems offer consumers quick, electronic access to a menu of loan choices and rates. They may involve either 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, home buyers 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, home builder or mortgage broker participating in the Mortgage Power program as a loan originator.
For over 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 real estate agents to collect fees for helping originate mortgage loans. Real estate agents 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 only to certain lenders.
Denies conflict of interest\
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 long-standing federal rules, they say, all such fees must be fully disclosed to the consumer, must be voluntary, and must be for services rendered to home buyers at their own request.
Mortgage bankers simply don't want to lose their own traditional fee income from home buyers, according to the real estate agents, and are trying to hold back advances in computer technology that help consumers shop for mortgage money.
Besides the amount of the maximum fee for 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 the publication of the rules, CLO systems used by real estate firms will have to 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 real estate broker would also have to provide consumers a separate non-exclusive multi-lender computer system.
Realtors also would be banned from collecting any fees whatsoever through loan originations unless they could 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 as meriting any compensation at all.
Tight new limits\
The regulations also impose tight new limits on real estate referral and business steering relationships among subsidiaries or affiliates of real estate firms in other fields. These include such services as property insurance, title insurance, banking, retailing and others. They prohibit incentive fees, bonuses 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.
Asked for reaction to the federal rules, the National Association of Realtors' senior vice president and chief lobbyist, Stephen D. Driesler, said his 800,000-member group is ``very much concerned' and ``we'll be doing what we can to get (the regulations) changed.'
On the other hand, Warren Lasko, executive vice president of the 2,700-member Mortgage Bankers Association of America, saw the work of a higher legal power in the regulations. The tough new standards ``are almost Talmudic' in their ``balancing of consumers', lenders' and Realtors' interests,' said Lasko.
Whether they remain in that state prior to official publication, he conceded, will depend upon how well Driesler and the Realtors Association conduct their lobbying campaign against them in the next few weeks.
Kenneth R. Harney is president of the Harney Corp., a publishing and consulting firm based in Bethesda, Md.