For the last seven or eight years, the trade associations for mortgage bankers and real estate brokers have spent an inordinate amount of money trying to get the upper hand in the area of mortgage loan originations. Instead of being played out in the marketplace, this battle has been fought in the halls of Congress and the corridors of the Department of Housing and Urban Development.
Both trade groups have massed their substantial resources to change or resist change in the Real Estate Settlement Procedures Act rules which govern the mechanics of originating a loan. The prize in this game is preferred access to the homebuying consumer.
Mortgage bankers have attempted to use the law as a vehicle for keeping real estate brokers out of the mortgage business.
The brokers have just as aggressively tried to use it to justify the payment of fees to their employees and independent contractors for little if any involvement in the mortgage origination process.
Trying to Play Solomon
HUD recently made available another edition of new and improved settlement rules -- its latest attempt to play Solomon.
The biblical lesson -- that the baby cannot be split without being killed -- has not yet been learned by HUD. The department should not try to balance the needs and desires of real estate brokers and mortgage bankers, but instead focus on the needs of the consumer.
The Real Estate Settlement Procedures Act was designed as a consumer disclosure and protection measure, not as a vehicle for regulating the industry. In looking to the application of this law, HUD's only concern should be the well-being of the homebuying public.
While the debate over the law has raged and the trade groups have battled in Washington and in the press, the market has moved beyond this issue.
Today, consumers are using new and innovative methods for getting a mortgage. Mortgage bankers and realtors are working together in ways that make the debate over many of the changes in the settlement act a nonevent.
One of the most popular trends in this area is the establishment of joint ventures between real estate and mortgage companies. These joint ventures are typically a 50-50 proposition -- funded equally by both parties.
Once established, the joint venture operates as a mortgage broker. It originates and processes loans for the customers of the real estate partner of the venture, which are then underwritten and funded by the mortgage company partner.
The profits from this operation are shared on the basis of the equity in the venture. One of the highest-profile joint ventures is Prosperity Mortgage -- owned by Norwest Mortgage and Long and Foster Realty, the largest real estate company in the Washington, D.C., area.
Many other mortgage bankers and brokers are either active in this type of venture or are giving it serious consideration.
In addition, mortgage bankers and real estate companies work together through wholly owned mortgage brokerage subsidiaries of real estate companies. In this variation, real estate companies establish a wholly owned mortgage brokerage subsidiary to handle loan originations for their customers. Mortgage bankers are involved in supporting these operations through the purchase of loans immediately after closing.
No Sales Commission
In virtually all of these joint ventures and broker-owned mortgage subsidiaries, no money is paid to the real estate salesperson, whether it be an employee or an independent contractor. These operations earn the business because consumers like the house -- not because they "buy" it from the salesperson.
So while the debate continues in Washington and the trade associations trade insults, the consumers, real estate companies, and mortgage bankers have already spoken. By their actions, they have demonstrated the desirability of offering consumers the convenience they want at very competitive prices.
Thus it is inevitable that the mortgage origination business will continue to move closer and closer to the point of sale, and successful mortgage bankers and realtors will find a way to profitably meet that demand.