Typically, mortgage lenders court real estate agents for leads - especially when interest rates rise, demand for refinancing shrinks, and most of the loans to be made are for home purchases.
But dozens of lenders have recently inverted that relationship, including Greenlight Financial Services Inc. of Irvine, Calif., which last month announced an arrangement it plans to take national.
The affinity program, which Greenlight started partly in response to expectations of a refi slump, lures potential homebuyers with a commission rebate from realty agents. Greenlight refers these customers to Fidelity National Financial Inc.'s HomeSold unit, which connects them to agents that give them a 25% rebate - even if they do not get a loan from Greenlight.
"It's kind of a 180-degree turn on" the typical lender-agent arrangement, said Don Clarke, the head of the new Greenlight Home Services division, which is in charge of the referral program. "We're actually handing the lead to the realtor, and they're working with us."
Real estate brokerages and agents have offered rebates for years to members of credit unions, alumni organizations, professional associations, and other groups.
Lawyers and other observers said that when other parties involved in real estate transactions have offered similar rebates, questions arise about whether the arrangements constitute illegal kickbacks.
However, executives at Greenlight and others involved in similar arrangements say they are perfectly legal, because the rebates go directly to consumers, who are not required to use the lender that makes the referral. Since rebates are available through many sources, lenders should be allowed to offer them, too, the executives say.
So far Greenlight has been referring only California customers to HomeSold, where a "personal transaction assistant" sends them to local agents who meet its standards and accept lower-than-normal commissions. The assistant also helps with other homebuying issues.
The program provides rebates to homebuyers even though the seller usually pays the agent's commission. It is also available to those who want to sell their homes.
Greenlight, which originates mortgages and home equity loans in 44 states through the Internet and telephone call centers, plans to eventually make referrals to HomeSold nationwide, except in the 11 states where such rebates are prohibited. A spokeswoman said it would begin to make referrals outside California "in a few weeks."
This month Greenlight began advertising the program on the radio and in newspapers in California. Mr. Clarke said it plans to heavily promote it in most of the states where it lends, and on national cable networks.
Jeff Lisinicchia, Greenlight's chief financial officer, said local real estate agents in HomeSold's network cut their fees for his firm's customers in return for the leads generated by the program. Greenlight gets a chance to offer customers one-stop shopping and to target homebuyers as refis wane, he said.
Though the program is also seen as a way to increase business outside California, homebuyers referred to HomeSold are not required to get their financing from Greenlight - which does not plan to "advertise" that fact, Mr. Clarke said.
Turning them into Greenlight borrowers will be a key to making the program pay off, he said. "If for some reason they've found a deal that's better, we will definitely try to beat that."
HomeSold is also getting potential customers from Malan Financial Alliance Corp.'s Payless Home Loans, which has one retail branch in Escondido, Calif. and originates loans in 13 states over the Internet and through joint ventures.
The Department of Housing and Urban Development has been cracking down recently on illegal referral fees and other violations of the Real Estate Settlement Procedures Act. In the past year and a half it has been hiring with the goal of tripling its enforcement staff, said Brian Sullivan, a HUD spokesman.
Though he would not comment on specific rebate programs, Mr. Sullivan said that "HUD generally has several yardsticks it uses to determine whether there is a Respa violation." The relationship must be fully disclosed, there must be no obligation to use the affiliated service, and the borrower must get "a true discount," not offset by higher fees elsewhere.
While the companies involved in the affinity rebate programs do not exchange any money with each other, Mr. Sullivan noted that kickback prohibitions cover the exchange of "anything of value."
Greenlight defends the program's structure as legal.
The fact that Fidelity National has such arrangements with other companies and has "more resources then we do in compliance and legal matters ... [make us] confident everything has been addressed that needs to be," Mr. Lisinicchia said.
