Part One of a Two-Part Series
[Editors note: This series examines the evolving relationships and competition between real estate firms and agents and their counterparts in home purchase transactions, mortgage lenders and originators.]
Just as Massachusetts mortgage lenders and brokers are getting acquainted with the state’s 2004 predatory lending law, a national Realtor group has announced it will attempt to help consumers avoid “toxic” loans. The new Realtor program comes at a time when some lenders are working harder than ever to form cooperative relationships with real estate agents while others are competing with agents to reach homebuyers first.
The National Association of Realtors announced its new consumer education campaign on May 16, a program designed to give the group’s membership the tools to help consumers avoid the pitfalls of predatory lending.
“Realtors are the first stop for consumers in the real estate transaction and we’re taking a strong stance against the practice by some unconscionable lenders to trap consumers into toxic loans that benefit the lender and not the consumer,” said Al Mansell, president of NAR and chief executive officer of Coldwell Banker Residential Brokerage in Salt Lake City, in a statement. “Homebuyers should get themselves prequalified for fair and affordable financing and Realtors can educate them on the consequences of some subprime loans that work against the homebuyers’ best interest.”
However, local mortgage lenders, mortgage originators and real estate agents contacted by Banker & Tradesman are divided about whether Realtors should be making assessments about loan products. The home financing playing field also has shifted in recent years, with more real estate firms attempting to corner mortgage business with in-house or third-party mortgage arms and some mortgage firms attempting to freeze out Realtors with sites like East-West Mortgage’s Danver-based Web site ISoldMyHouse.com. While increasingly adversarial as the competition to reach potential homebuyers first has increased in recent years, the relationship between lenders and Realtors traditionally has been a cooperative one.
Some real estate agents say they firmly believe they have the ability to guide consumers in the right direction and, since Realtors often are still the first point of contact for potential homebuyers, should do so.
“I definitely have enough knowledge” to advise homebuyers about financing, said Linda Kody, a Realtor at Kody & Co. in North Andover.
Kody concedes that not all Realtors have enough information to determine the difference between a subprime or predatory loan, but she said it is important that Realtors send consumers to the right lender.
Kody has built relationships with lenders and said she is confident in sending her buyers to them.
“I look for large lenders that are well known,” Kody said. “There are always going to be originators who have the same working style as me.”
When a client is venturing into a subprime loan, Kody said she feels safer referring someone to a larger bank that offers subprime loans.
NAR’s initiative can be helpful, said one lender, as long as Realtors have the correct information.
“Education is always good,” said Dean Caso, president of Homevest Mortgage in Needham. “As long as the education is correct.”
Describing NAR’s program as a positive effort, Caso said there is a small segment of the lending population that prey on unassuming consumers and any effort to identify it is helpful.
James F. Flynn, president of Marathon Mortgage in Hopkinton, said that because mortgage terms are so complex, Realtors shouldn’t have a place determining whether a loan is predatory.
“There are so many different qualifications for [determining what is subprime vs. predatory],” Flynn said.
Because underwriters at each company have different standards, Flynn said Realtors shouldn’t be making the call.
“Those people are not qualified to talk about predatory lending,” Flynn said. “[The predatory lending law] was set up for exactly [identifying unscrupulous activity in] the lending industry.”
Flynn has one Realtor on his side regarding predatory lending. Ralph Miller, broker-owner of Hughes & Hughes Real Estate Co. in Natick, said explaining predatory lending to consumers should be left up to the lenders.
“We do what we do best and what we do best is sell property,” Miller said.
Summit Mortgage of Boston often seeks loan referrals from Realtors, but founder and President Rick Fedele said many of them tend not to know which individual loans are predatory.
“Ninety-nine percent [of Realtors] don’t know what’s a good loan,” Fedele said
However, over time, Realtors can learn which lenders are reputable, Fedele said.
Like Caso, Fedele said NAR’s initiative can be helpful because it makes more people aware of possible problems in the lending industry and, therefore, customers may ask Realtors for advice, creating business for a lender or mortgage originator who is established as reputable in the eyes of the real estate agent and has formed a relationship with them.
Kathleen Schreck, chair of the Massachusetts Mortgage Bankers Association and sales manager at Danvers-based Mortgage Network, said that determining if a loan is predatory is not a Realtor’s function. However, she notes that ultimately they must play a part in ensuring customer satisfaction and is in favor of the educational effort by NAR. Charlie Nilsen, MMBA board member and New England regional manager at JP Morgan Chase, said Realtors are not in a position to advise people on their credit history and their chances of receiving a subprime loan vs. a conventional loan. He also said the vast majority of predatory loans are related to refinancing and equity stripping and less related to home purchase business.
While the NAR program is designed to help real estate agents steer homebuyers away from predatory lenders, a small number of agents may actually be complicit in the problem.
According to Jim Wilde, executive director of the Merrimack Valley Housing Partnership, there is a small segment of Realtors who actually work hand-in-hand with predatory lenders.
“Realtors should be more aware of what some of their colleagues are doing,” Wilde said. “Predatory lenders are working with some Realtors.”
While some unscrupulous Realtors may knowingly or unwittingly work with predatory lenders, real estate and mortgage practitioners say it is uncommon. Sonny Romano, mortgage loan officer at Mortgage Network, said the Realtors he works with are well-versed in the scams that exist in the lending industry.
“They tend to be a bit more educated than people would think,” Romano said.
Referrals Remain
As varied as the views on what role Realtors should play in the financing aspect of a real estate transaction are opinions about whether the basic relationship between lenders and Realtors is supportive or adversarial. Professionals on both sides of the fence agree that the degree and tenor of that interaction has changed and evolved over the years.
James Dougherty, executive director of the Massachusetts Mortgage Association, said the buying public knows what they want and it is not something practitioners in either industry have an opportunity to greatly change.
“[The relationship] has evolved for practical reasons,” Dougherty said. “The buying public has become more educated.”
However, many Realtors and lenders say teamwork is still the best method of getting business in the door while protecting and helping homebuyers.
“We work in harmony,” Miller said.
Miller said although his company does have some ownership of a lending company, which his Realtors disclose, he still works with outside lenders. He notes that the relationships with loan officers tend to be with a specific person and not a particular company.
“It’s more the [trust in the] originator you form a relationship with,” Miller said.
Fedele admits the relationship between lenders and Realtors has “changed a bit,” but real estate practitioners continue to provide Summit with the bulk of its business referrals.
“Realtors are still very influential” in the financing of home purchases. Fedele said. “Realtors are vital to my company’s success.”
In recent years, anticipating an end to low interest rates and record refinance business, many loan originators have increased their efforts to form or renew contacts with real estate agents. When refinance business drops off, increasing home purchase mortgage business becomes essential for a mortgage firm to succeed.
For Homevest Mortgage, a “decent” amount of referrals come from Realtors, said Caso.
“In the last 20 years, they were very involved in the process,” Caso said.
Two decades ago about 80 percent of his business was generated from Realtor referrals, Caso said. Things have since changed. In 2004, the company generated about 38 percent of its business from Realtors. More business today, about 45 percent, is generated by repeat customers.
In the 1980s, those in both real estate and lending were “partners,” according to Flynn of Marathon Mortgage.
“We would go in and educate Realtors on these things [predatory lending],” said Flynn.
Unfortunately, said Flynn, relationships have been strained because there are so many lenders knocking on Realtors’ doors.
“They’re kind of tired of it,” he said. “[But] we’re trying to provide education [on aspects of lending that are changing].”
Fedele, however, said the bulk of his employees still meet with Realtors in person and develop relationships.
“We kind of do it the old way,” Fedele said, adding that teamwork is necessary to his business model. “I’m trying to help them [Realtors] sell homes.”
Both Romano and Schreck at Mortgage Network said they firmly believe teamwork between lenders and Realtors is the best strategy. Romano said his purchase mortgage business has largely been a result of referrals from real estate agents and credits real estate closing attorneys and brokers he works closely with for his success. Working together, instead of competing, has made business better, Romano said.
[Next week: A more in-depth looks at the growing competition between real estate firms and lenders.]
Jennifer Jope may be reached at jjope@thewarrengroup.com.
