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Potential RESPA Violations and Mortgage Lenders Steering Buyers:

Brian Brady wrote a post recently entitled: Why Mortgage Brokers Love Countrywide and some of the comments got me thinking again about things going on in my market place that are real borderline RESPA Violations.

In my market place it's now common on REO listings to have it written into the comment section that the buyer must get pre-approved with the lender who is holding the foreclosure. Countrywide Home Loans seems to be the biggest player with this type of stance. Though it might not be a direct violation of RESPA it sure makes you think again about how this gives the buyer the right to choose his own service providers.

Here is the exact statute from HUD on RESPA Violations:

Introduction

The Real Estate Settlement Procedures Act (RESPA) is a consumer protection statute, first passed in 1974. The purposes of RESPA are

•1. to help consumers become better shoppers for settlement services and

•2. to eliminate kickbacks and referral fees that unnecessarily increase the costs of certain settlement services.

Details about RESPA

Corresponding with the above purposes:

1. RESPA requires that borrowers receive disclosures at various times. Some disclosures spell out the costs associated with the settlement, outline lender servicing and escrow account practices and describe business relationships between settlement service providers.

2. RESPA also prohibits certain practices that increase the cost of settlement services. Section 8 of RESPA prohibits a person from giving or accepting any thing of value for referrals of settlement service business related to a federally related mortgage loan. It also prohibits a person from giving or accepting any part of a charge for services that are not performed. Section 9 of RESPA prohibits home sellers from requiring home buyers to purchase title insurance from a particular company.

My questions out there to the entire real estate community: WHEN IS SOMEONE GOING TO ENFORCE RESPA!!!

When REO's require a buyer to get approved with their lender they are really hurting everyone in the deal. Here is a list of things that it creates:

•1. It takes direct control away from the buyer and their agent on the outcome of that loan.

•2. It does not guarantee the buyer that the lender will be anymore competitive on loan pricing and rates.

•3. It empowers the seller.

•4. It can set unrealistic expectations for the entire transaction. Such as closing dates.

Maybe I see things differently from other mortgage lenders out there, but we need to learn to treat the people in our industry with the highest ethical standards and promote a good image for our industry.

Posted by Gary Miljour - Mortgage Lending for Tempe Arizona on 06/05/2008 09:58 AM

Comments (79)

unethical lending practices, respa, mortgage advice, mortgage guidance, reo

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79 Comments on Potential RESPA Violations and Mortgage Lenders Steering Buyers:

JUN

2008

Based on what you posted from RESPA I am trying to see the violation. Since the lender is only prequaling the client they are not forced to close the loan with them.

In my area mortgage brokers are now playing countywide's role. They are requiring borrowers to provide their entire loan package (all documents) and signed 1003 in order to give them a prequal so that they can even put in an offer. This seems like a privacy issue to me. Why should my client have to provide copies of a tax return in order to make an offer on a property? It seems totally ridiculous to me.

Gary - I agree. But I also see the other side of the coin. They are not requiring the Borrower to fund using Countrywide. They want a shot at the financing. They'll also argue that by having the complete buyer applications they'll have a better idea on the if the deal will close. It's a weak argument, but I'm sure that's the position they'll take.

You and I know that if the borrower goes through the application process first with Countrywide, chances are slim they'll apply elsewhere. It's all just a sales gimmick.

Gary - Mike brings up a good point and my guess would also be that is the position they are taking. None the less, I think this is very important to look at how RESPA is being enforced. It's funny, we talk about regulating this and regulating that but do a lackluster job of regulating laws already in place. What gives?

"In my market place it's now common on REO listings to have it written into the comment section that the buyer must get pre-approved with the lender who is holding the foreclosure." Pure 'steering' in my book ... and pretty blatant at that.

Jason - I don't think of it as steering. CFC, like any seller has the right to expect the buyers deal will close. If it was Mr. and Mrs. Smith selling, they wouldn't consider the offer without a pre-approval letter right? CFC is doing the same, but since they are in the business, they are also taking one step farther, using that excuse to generate more applications. Every business is in business for one reason, to make money.

Gary-

Thanks for calling out some of the behavior that has entered the market in the last 18 months. I see concerns for RESPA being violated by Countrywide and other lenders. I can speak to a specific client where we were told in no uncertain terms by the other realtor that the buyer had to use Countrywide's title company or the deal would not go through. An excerpt of my email to the agent for communication to Countrywide upon being told this...

"I have to be clear that the buyer has a strong preference to use Security Title as a first choice here per the original signed addendum and that should be communicated to Countrywide.
The buyer has provided me a revised page 16 here to reflect First American Title as the title company. Countrywide needs to understand the buyer is being flexible here and is focused on the purchase of the property and doesn't want any insistence by Countrywide to use First American Title to be an issue to impede successful close of escrow."

In the end, the title company's performance here was atrocious and resulted in delay of COE for a week and a half. This is despite my numerous and exhaustive efforts to get the title company to perform their role on time (First American in Scottsdale).

I believe someone needs to seriously look at this behavior on the part of some lenders as well as the performance of some agents who are turning a blind eye to the practice that may be in clear legal violation of RESPA.

Thanks again for your post Gary!

Mike - I hear you on that but saying they "must" be pre-approved with the lender who is holding the foreclosure is forcing their hand, is it not? What if the buyer is already pre-approved through a separate entity? I understand your point but don't agree with that practice. If they aren't already pre-approved, then perhaps I can understand it. Whether it is a direct violation of RESPA, I doubt it ...

Team Newington- I understand that the RESPA guidelines do leave room for intrepretation and debate, but it also makes it clear that the buyer (consumer) has the right to make the lending choice. That right of choice is being eroded by behaviors of certain lenders like Countrywide. Is it an actual violation? Well that is up to a court to make a determination. Is it steering and unethical in my opinion Yes.

Mike- You are 100% correct, that the buyer can still make the final choice. However I have to Agree with Jason Sardi that its steering and that is where it becomes debatable at best if its a RESPA Violation. We all know their intent is just a marketing ploy, however, it truly hurts our industry and creates unethical behavior.

Jason Sardi- All I can say it "I concur". The practice is completely wrong.

Here's the way I've chosen to look at this issue: What if John Smith were selling a home and he made it part of the contract that the buyers must get pre-approved with CFC, regardless of whether the buyer is already pre-approved with another lender/broker or not? Wouldn't that send up red flags everywhere? Would a realtor recommend his pre-approved buyer sign this contract? Are we to assume that CFC is more concerned that the deal gets to the closing table than the private owner who has a contingent offer on a new property?

Marko- Are we to assume that CFC is more concerned that the deal gets to the closing table than the private owner who has a contingent offer on a new property?

That is exactly the way I see it. If a seller were to try and impose this say situation on his own listing, no selling agent and buyer would tolerate this.

Thanks for the comment.

It would be hard to deny that Countrywide is looking for some business out of being able to pre-approve prospective buyers of their REO's. However, there is another reason: they want to know that the buyer is really capable of getting the deal closed. Granted, this worked alot better when CFC had a full array of lending products. Now that they're pretty much all FHA and conventional/conforming the argument loses alot of its validity. I am no fan of Countrywide by any stretch of the imagination. However, given the fact that there are alot of people still in this business whose "pre-approval letters" might as well be written in crayon on craft paper, I can understand why Countrywide and other companies with both lending and servicing platforms insist on pre-approving prospective purchasers.

Best regards,

Juan- I can respect your opinion but the argument that every lenders pre-approval is garbage except a Countrywide pre-approval seems like an excuse to steer their lending arm. It's funny how other sellers will accept a pre-approval all day long from a buyers lender but CW will not. Again, this behavior is for the sole purpose of steering a loan in their direction which could be a potential RESPA violation. I can respect a seller to be cautious of bad lenders providing a pre-approval as you say: written in crayon on craft paper, but there is a proper way to handle this upfront with a lender.

As always, thanks for the comments

JUN

2008

There is not much I can add because everyone's comments above covered my thoughts especially Mikes and Jasons BUT GREAT POST Gary. I do think that it is bordering unethical and it has just been in the last 8 months that I have noticed this very issue. Best of luck to you Gary.

I understand where you're coming from. As someone currently on the broker side myself, I don't at all care for the idea of someone trying to pilch my business. However, the point I was trying to make isn't that "everyone else's pre-approval is garbage," but rather that there are enough out there whose pre-approvals who are that it is a prudent business practice to make sure that the buyer is qualified before taking the REO property off the market. Believe it or not, due to the nature of REO's, those listings often attract "bottom fishers" and more of their pre-approvals tend to be garbage. The bottom line is that, from the perspective of the loan servicing side of the business, once enough deals fall apart due to garbage pre-approvals, you feel a need to "pre-screen" everyone. It's sort of like metal detectors at the entrances of courthouses: does everyone bring a gun to court to shoot a judge, a lawyer or a witness? Of course not! Once something like that happens a few times, voila: metal detectors everywhere.

I used to work for a large national lender (not Countrywide) and our company did the same thing. The company had a full product array and I can say pretty confidently that if we couldn't qualify them for financing, they probably were not approvable. Suffice it to say that I saw my fair share of instances where we ended up financing a "pre-approved" buyer's purchase after the financing they lined up on their own "fell through." Just for the sake of illustration, I had one fellow with a sub 620 score, multiple mortgage lates in the previous 12 months and an average daily balance in his checking account of less than $500. Early in the 20th century the guy would have been described as "having no visible means of support." Yet he insisted vehemently that he was approved for a N/O/O loan on a stated income basis.

As far as chasing that business was concerned, I can honestly say that we really had no incentive to do so. The profitability metric for those loans was infintesimal compared to those that came through other business channels. More than anything else, we were assigned the chore of "pre-approving" those prospects as a "favor" to our REO department. I can only speak from experience at that one company. However, based on that experience, the practice is not nearly as sinister as many appear to think.

If you take a look at my comment on Mr. Brady's blog about Countrywide, I think you will find that I have very little regard for that company. I can't speak for the way Countrywide goes about "pre-approving" potential buyers of their REO properties. However, I do stand by my position that in general, it is a perfectly legitimate business practice. Do I like it when some lender's portfolio defense department tries to "pick-off" one of my refi clients? Of course not! I imagine, though, that they don't much like it either when rates are falling through the floor and the whole world is trying to rip their servicing portfolio to shreds. This is business. If you've got a borrower who ends up having an interest in an REO property that belongs to CFC, Wells or some other originator/servicer, prepare that borrower, earn their loyalty and make them want to use your services. If you're not doing that, your business is just as vulnerable to the rate-selling order-taker LO at the local credit union or strip-mall broker shop on the other side of town as it is to Countrywide.

Dione- Thank you for your comments, I think we both agree with this type of situation.

Juan- I had to re-read your last comment a couple of times to try and share my thoughts further.

Here is the question that HUD would need to ask any bank out there when making a case for a RESPA violation. If a buyer goes to a lender, gets approved and that buyer does not want to have anyone else pull their credit and do their loan application does that REO Bank have the right not to sell them the home if they do not apply with them? My intrepretation under RESPA: The answer is No, they (REO Bank) do not have that right and this is where RESPA might of been violated. I know why the big banks behave this way, but it still does not make it right. It's is steering for sure.

I will finish by stating that I think we can agree to disagree on your following thoughts: However, I do stand by my position that in general, it is a perfectly legitimate business practice.

As your thought of maybe I am having some sour grapes for a loan being taken away, that is not the case at all. I usually win out on these loans from the REO bank. I wrote this due to the fact that we have these unethical steering practices and potential violations becoming normal business practices.

Thank you again for your comments, the more insight on this issue the better.

JUN

2008

Gary,

You started a great debate. From my point as a real estate agent the additional required pre-approval required by the lender who is disposing the REO asset is an unnecessary inconvenience and absolute nonsense. I can appreciate that the lender wants to get a piece of the action and assurance that the transaction is likely to close, however this should be done in an ethical manner. Why should my client jump through hoops , provide all their documentation and have the credit pulled again? My humble opinion is that a loan status report issued by the original loan officer of the buyer should be enough information for an asset manager to make a decision when accepting or countering an offer.

Christoph- Glad to see that you joined the debate and heated discussion.

Why should my client jump through hoops , provide all their documentation and have the credit pulled again? My humble opinion is that a loan status report issued by the original loan officer of the buyer should be enough information for an asset manager to make a decision when accepting or countering an offer.

I have to agree with you on this.

JUN

2008

We had one again this last week where the Bank would refuse to reference our credit report and insisted they re pull. Our buyer changed their mind and made an offer on another REO.

JUN

2008

Team Newington- I hate to say this, but it feels real good when a buyer chooses not to write an offer with someone for requiring something that is not needed.

I had a buyer about 2 months ago who just flat out refused to work with the builders lender and walked away from the deal and bought a resale for a much better price. When the builder finally called me 2 weeks later wondering if I was helping them with the loan, I got to tell them nicely that they blew it and the buyer decided to go in a different direction. I also said that maybe in the future they should listen to the customer. Sometimes that whole steering thing backfires.

Good for your client.

Thanks for the comment.

JUN

2008

Gary, good post on RESPA. Many of the MLS listings REQUIRING the buyer to use the seller's title company MUST then, according to RESPA, pay for the buyer's ALTA policy - plain and simple. Lots of questionable calls being made.....;-)

JUN

2008

Terri- Thanks for the comment, I have to agree there are some very questionable things going on in our market and it really hurts consumer confidence.

JUL

2008

Gary, I am glad you brought this to the AR community. HUD is scrutinizing RESPA violations and putting the hammer down on unscrupulous practices....see http://www.tradingmarkets.com/.site/news/Stock%20News/836819/

HUD's only priority is to protect the interests of consumers and all of the ABA's, partnerships and agreements to "steer" borrowers never benefits the consumer. I get the whole concept of making money, but I do not get doing it at the unnecessary expense of the borrower /consumer.

Lower cost, maximize efficiencies, use a low cost model, give ridiculously exceptional service and pass the saving to the borrower. This is not a complicated concept. I am amazed the consumers do not demand it more often....but times are a changin

As for the REO situation, well at least Countrywide is no loner a concern and I can almost promise B of A won't either....for the others, consumers really have the power to make these changes by simply using market power, they just need to be empowered. Perhaps more of these blogs will make to the public at large

Great post!

Your title source!

Bo- Thanks for comments, using unethical activities catch up with people. It seemed to catch up with First American Title.

AUG

2008

Gary,

Just stumbled across this post looking for the newest guidance from HUD...

I think you need to re read your post and what C wide requires... I hate it too... don't get me wrong.

The must be pre approved... says NOTHING about them USING C wide... ANY seller can require that and I have in fact recommended to some of my sellers very much the same thing if the financing is questionable...

OH... forgot to mention... one of my pet peeves...

STEERING refers to pushing one race/class of people into or out of areas to purchase a home...

I CAN steer clients to other providers all day long and NOT break the law. In fact I think it is an ethics violation to NOT steer clients to providers we know to be good rather than just let them "look in the yellow pages"...

AUG

2008

Mark- That is one definition of that word, but that is not the way I used this. Steering also means pushing. I think we both agree that abusive techniques like this should not be used.

AUG

2008

Gary,

I think I get what you are saying but it sounds like my original thought. When you talk RESPA and STEERING in the same post I only read it one way...

To you point though I think as agents and loan officers we SHOULD STEER... if you as an LO have a buyer that has not agent and is buying a home and don't encourage them to use an agent you know to be good and just let them "twist in the wind" and maybe find a good agent or maybe (more likely) find a bad one... then I think you have not done the right thing.

Same for me, if I have a buyer and dont encourage them to use a lender, inspector, etc that I knwo and trust then I think I have not done what I should.

On the C wide issue, they are just protecting themselves by knowing the buyer is capable of buying... not requiring them to use Cwide...

good conversatino...

AUG

2008

If I may throw an example in the ring too, it happened to me a few years ago. I had been in the mortgage industry for over 20 years as a wholesale rep for a bank and worked with the broker community.

There are some not so good brokers out there but there are plenty of good ones too. Anyway, I bought a new construction home from a builder and in order for me to get the incentive I had to use their recommended lender. I happened to know the loan officer and although I wasn't pleased went ahead with the "pre-approval process, etc. As the months went by as they were building the house I had no contact from him, nothing, but that was o.k. too, I don't need someone to hold my hand I just thought it was sort of thoughtless on his part.

As it got closer and we updated the credit package, etc, it got down to now rate quoting and locking. I knew what rates were as I was wholesale and did expect to pay regular retail prices having to go thorough him. Then came the day, I thought the market hit bottom, I called him to lock it as we were within 30 days of closing. No return call, I called again, nothing, again, nothing. So now I'm mad, missed the opportunity to lock as several days went by and he can't even bother to call me back even after I mentioned locking.

So, I went to the builder sales office to try and get some assistance and said I no longer wanted to work with this bozo and I would go through the bank I worked for. But then they said that's fine but I will lose my incentive, OH REALLY? An hour later they called and said I could use whoever I wanted to and would still get the incentive.

Yeah for me right, but what about the guy that hasn't been in the industry for 20 plus years that may not know his/hers rights or was afraid to push the envelope. It's intimidating for a lot of people, I mean the whole process from, selling, buying, qualifying, and moving. We deal/dealt with everyday but not Joe consumer.

I also understand the swiss cheese commitments from some brokers, yes it's a pre approval but it has lots of holes in it. I suppose brokers are reluctant about giving pre approvals anymore and want the lender to do it because the underwriting guidelines have changed so drastically lately. So even though I don't like what CW is doing and I do think it's "walking the line" I would believe a letter of commitment from them more than a bunch of others I won't name. They can't force people to use them but I'm sure the people think I don't want to go through that again. Legal, yes, but like I said walks the line. No one ever accused them of being stupid! Thanks for my rant!!

AUG

2008

Robyn- Great comments, I do not think it's a rant but more of a story of the real situations that this type of behavior puts us in when we go to buy a home. CW is really walking the line. This type of behavior in my opinion is just not acceptable. I hear industry insiders talk about how we need to be professional in this market and yet some folks decide that used car sale tactics are still the best.

It's kind of interesting that this thread just came back to life, as I am on my way to processing with file that was recently referred to me by -- would you believe it? -- the listing agent for a REO property. Basically, the borrower told me, "I had to get pre-approved by 'Bank X,' but the agent said you're really good, so I'm calling you." The buyer wasn't particularly keen on having to go through the application interview twice, but it seems as if the agent did a good job of explaining the situation. As a result, the buyer knew "the drill," and since he didn't fall just off of the proverbial turnip truck, he won't be going anywhere.

The moral of the story: impress the real estate agents. They are often the most significant "influence center" in a real estate transaction, regardless of what hoops someone like C-Wide might try to pull.

Juan- I agree with you, the pull is always with the agent and the client. I rarely will lose a loan because of this used car sales tactic that CW pulls, but it sure does not make it right. You know everyone is stating that this is not hurting the buyer, but it does in so many little incidents. For instance I had a bank owned deal where the client was an investor and the bank required that the title/escrow go thru their title co. On the surface it sounded fine because the seller is paying for the owner title insurance, however the title company did not have a filed rate to give my client a discount on the title insurance for being an investor. My client had to eat about $150.00 in additional cost because of the bank. If he had chosen the title company, he would of received that discount. Now some title companies are charging additional escrow fees because it's an REO deal. When the buyer loses the right to choose these type of things happen.

AUG

2008

Gary, great post. You could also expand this to homebuilders steering borrowers to their 'preferred mortgage lender' (usually owned by the builder) and providing incentives of any kind.

And Julio, you nailed the real issue:

Now, as a mortgage banker/broker, I have access to over 100 lenders, some that will do files that others won't do (otherwise I'd just have one lender, right?). So, the issue here is, let's say the borrower doesn't meet Countrywide's criteria for whatever reason. Does that mean they can't get financed? No. However, since they can't 'preapprove' the file, now my client (who can obtain financing) is denied the opportunity to even put in an offer on the house. In my opinion, this is going to be the straw that breaks the back of numerous large lenders as someone at some point will sue, win, and the financial penalties for repeated abuses of Respa violations will be immense.

(Of course, at that point, the Feds will bail them out, pay the fine, and pass it out to the taxpayers, but that's a whole story in and of itself).

SEP

2008

i think that we are heading towards a less balanced playing field not a more balanced one. am i the only one?

Chris the implementer

SEP

2008

Has anyone heard of CFC requiring that a prospective buyer of the REO property finance through CFC? Please let me know, as I am curious to hear whether they have become this bold yet. I have seen it here locally on several occassions. However, whenever taken to task on it here locally the brokers seem to say they "misspoke." Thanks

SEP

2008

Gary,

I just had an experience you might find interesting in connection with this thread.

I'm working with a buyer that wants to buy a Countrywide REO. Countrywide "pre-approved" them as they required, but they have no interest in working with CFC and are sticking with me. In any event, these buyers are only eligible for FHA financing because their credit scores make them ineligible for pmi. My buyers wanted to write an offer contingent upon FHA financing, but the agent told them that they won't accept an FHA mortgage contingency because of property ineligibility issues.

To me it speaks volumes about the value --or lack thereof-- of a CFC pre-approval. You'd think that if the property were ineligible to go FHA (I still have not made my own investigation into that aspect of the transaction), someone would say to the CFC LO, "hey, FHA won't accept this property as collateral for a mortgage it insures for X or Y reason. This neads to be a conventional financing approval". Apparently, in generating these so-called "pre-approvals", the folks at Countrywide don't make much of an effort. As a result, CFC's persistince in pursuing this policy concerns me less and less. It'd definitely annoying --much like an insect flying around one's head-- but that's about it.

SEP

2008

Cwide is just pre approving the BUYER not the PROPERTY... Do you actually approve the property of each buyer you work with BEFORE they have an ACCEPTED contract on the property?

Dont get me wrong I am no fan of Cwide... lets just throw stones where they belong...

Mark, in the case of every other pre-approval, I would agree with you. However, in this case, since the buyer is buying one of CFC's REO's, they are pre-approving the buyer for the purpose of buying that particular REO. If it weren't a CFC REO, this thread would not exist. The fact that it is their REO is precisely what gives rise to the practice in question in the first place. But for the fact that these are CFC REO's, these buyers wouldn't be in front of CFC in the first place.

One of the main reasons that they insist on pre-approvals for their REO's is to make sure that they are not wasting time with a buyer who cannot obtain financing for the property in question --the property they are trying to get off their books. So, if they can only approve the buyer for an FHA loan, what is the point of the pre-approval if the property they are trying to sell is ineligible as collateral for an FHA mortgage?

Why pre-approve a buyer that wants to buy one of your REO's if you know that your pre-approval is meaningless?

OCT

2008

I couldn't find a comment on actual RESPA violations enforced. I read somewhere that less than 20 RESPA violations were actually enforced a couple of years ago.

Juan

Sorry for being late to the party, I just got back from vacation. You make a lot of valid points about CW. Thanks for the comments.

Rick- You made the same valid observation that I have made and that is the fact the no one on the federal level who set up RESPA actually enforces their rules. This is why there are so little complaints. It's like talking to a brick wall. I do not even understand why we have RESPA laws if there is no bite in the law. It makes the laws useless. Thanks for the comments.

OCT

2008

Folks,

If you are going to leave a comment, please leave your name. I will not stand for anyone posting a comment to my post if a name is not given.

Sorry,

Gary,

I completely agree... I hate and to a large degree discount any post w/o a name...

With that said, I think the post w/o the name made some great points and is worthy of being left in the thread... I think you should put it back in. Your blog, your rules... hope I have not over stepped.

It seems as though, in the case of an REO, the empowerment is in the hands of the financial institution exercising the option to accept any offer, and advance towards closing as expeditously as possible. It's their property and they do what they want to with it ? Including violate RESPA. You wonder sometimes if violating RESPA isn't just a wicked game they play to see how long they can get away with it. I wish they'd stop. Good post, Gary.

It is now pretty common in Atlanta to find out buyers will not work with you, because their lenders are assigning the buyers the agent.

Sounds like steering to me!

Gary - I'm going through this same situation right now. I have a client who is going Cal-Vet and there have been a couple of CW REO listings that he's liked and wanted to make an offer on but because CW doesn't offer Cal-Vet, they can't pre-approve him so he's disqualified from making an offer on any of the CW REO's that he's liked.

One particular CW rep told me they could qualify him for VA but not for enough to make an offer on the property. I explained to the rep that this is why we're going Cal-Vet (Cal-Vet rates are lower than CW VA rates) and not VA because with Cal-Vet he can qualify for more.

Just because CW can't help someone doesn't mean that the buyer isn't a qualified buyer. CW needs to stop demanding that buyers have to pre-approve with them in order to make an offer.

OCT

2008

I have a different view on the case where a seller requires a buyer to use the services of a lender. There might be something unethical about this but I don't think that this would be a violaition of RESPA. A seller can't pick a title company and make a buyer use it (section 9). The folks who wrote the law made that clear. OK, so I must assume that if they had meant to say that a seller could not pick a lender and make a buyer use that lender they could have easily made that clear. They didn't say that.

What they said was that a seller could not get a kick-back (section 8). That's different. Many of the posts seem to take for granted the idea that a seller requiring a buyer to do business with a lender is a violation of RESPA. What part? Be specific. I think if a seller can require a buyer to use a lender as a condition to a transaction (and, again, this might be a violation of some other law, but not RESPA) then a seller can do the lesser thing and require a buyer to prequalify with a given lender. Again, a lender is not a title company and there is no provision in RESPA that prohibits this conduct. I'm sorry but it seems folks are reading into the law (rather than reading it) and then complaining that it is not being "enforced."

Sure, you could look at an affiliated business and say that requiring a party to do business with an affiliated company is a form of kick-back. But if that is what you want to say please be specific and say it.

Well, while it may not be very "PC", Joseph does have a point.

During the time when a lender like CW could --and would-- finance just about anyone with a heartbeat, it may have made business sense. If they said "If we can't approve you, no one will," it probably would have been true --or as close to true as you could get.

As Donne and other point out, however, CW can't finance everyone anymore. So the business premise for their rationale in requiring that their origination channel pre-approve anyone who submits an offer on one of their REO's is definitely now a faulty one. Hopefully one of these days they'll "get it" and at the very least make room for an exception here and there.

Joseph,

I am so glad that you re-posted. I always hate deleting any comments, because I hate it done to me. So thank you for being so kind to my 1 rule.

One thing I wanted to point out on this entire post is that I also feel that CW is Not violating the law based on the way it is written and I am not reading into it further. However, we all have to live by a certain code of ethical responsibility and for CW being the largest mortgage lender, they know better than to cross this unethical line of steering business. Their approach will catch up with them when buyers just decide to buy other properties.

The 2nd issue going on in our market is that the RESPA Police (Fed Government) does not enforce or even investigate these issues. It is easy for me or others to state it is or is not a violation, but when no one is enforcing the issue, it gets out of hand like we are seeing now.

Thanks again for the comment.

DEC

The customer is not required to get the loan with Countrywide. Most of the time they have already been pre-approved somewhere else. It takes a lot of time to pre-approve when the loan is going somewhere else.

The concept as mentioned before is does this thing have a chance of closing.

If an AUS accept is not rendered an unable to render decision letter is issued and the buyer may still get in under contract.

I've written a post on the subject if you care to review.

Gary - I thought I would just add an updated comment to this ongoing discussion (what a great post you have here). Just recently, I have some clients who wanted to make an offer on an REO property where they had to get pre-approved with a local CW retail rep. I've been working with these clients for a couple of months and a few weeks earlier, they had pre-approved with another CW rep for another REO property, which they ended up losing because they were outbid.

At this point, they did not want to apply with yet another CW rep, provide all their docs again and get their credit pulled again but since they really like the property they were willing to go through the motions again. However, because my clients are extremely busy people, they asked me to take care of the process and to forward the info onto the retail rep, just as I had done before for the previous CW REO offer.

Acting in the best interest of my clients, I ran their file through CLUES (CW's AUS system) and got them approved (we have correspondent status with CW). I then forwarded this info onto the designated CW retail rep and followed it up with a phone call a short while later to confirm that he had received it. What followed was actually not really surprising to me but was a real eye opener for my clients.

The rep was rather perturbed that I had run my clients through CLUES and has sent him the report findings. Not only would this retail rep not accept my CLUES approval but also informed me that he does not talk to buyers lenders and will only deal directly with the buyers. I relayed this info to my clients and asked them to contact the rep directly.

After speaking to the rep, they called me back to tell me that they had changed their mind and no longer wanted to make an offer on the property. They told me that the rep didn't seem all that concerned with their qualifications (why would he - CLUES accepted them) but rather seemed more interested in securing them as clients at which point they informed the rep that they had no intention of changing their lender because they were perfectly happy with me and the service I was providing for them.

As I mentioned, this incident didn't really surprise me. I know that while CW uses this unethical tactic as a marketing ploy and claim they are just interested in making sure that the buyer is qualified to close escrow, most of us already know that they use this marketing ploy to pilfer other lenders clients.

More times than not, when my clients have asked me to speak to the designated CW retail reps that they are required to pre-approve with before making offers, the CW retail reps are usually agreeable (a few have turned out to be real jerks) to working with me in letting me know what they want and don't make any obvious moves on trying abscond with my clients.

However, this last one made it quite clear what his intentions were and fortunately for me, my clients were not impressed with it and made the decision to pass on the property. As others have noted, when more buyers begin to make this decision to refuse to deal with and promote this type behavior, we will begin to see less of it. FYI: as someone mentioned earlier, we need to empower our buyers as well as educate them on their rights. It's that type of service that will earn their respect and loyalty.

Sorry for the long post but I felt the message was worth posting.

Jay,

I have to totally disagree with you on this issue completely. This marketing technique is very much steering, completely unethical and does border on RESPA vilolations. I am not saying this because I am trying to point the finger at CW but more at our industry that we allow the bigger mortgage banks the freedom to conduct themselves in this behavior based on the fact that they are the loan servicer of the bank owned property. Just recently HUD announced starting Janurary 16, 2009 that builders can no longer take away incentives from a consumer buying their home and not using their preferred lender. This also started out as just a potential RESPA violation, but now HUD has made this clear that it is a violation. The practice that CW practices is very similiar to this. With all the multi-state law suits against CW, you would think that they would re-think their position on this.

Donne,

However, this last one made it quite clear what his intentions were and fortunately for me, my clients were not impressed with it and made the decision to pass on the property. As others have noted, when more buyers begin to make this decision to refuse to deal with and promote this type behavior, we will begin to see less of it. FYI: as someone mentioned earlier, we need to empower our buyers as well as educate them on their rights. It's that type of service that will earn their respect and loyalty.

Sorry for the long post but I felt the message was worth posting.

Thank you for adding and sharing your comment to this post. I feel the more fair, ethical and honest lenders out there that expose unethical and wrongful behavior the better off our industry will be at helping the public and consumer.

This type of behavior I feel is just wrong, sure we can debate it back and forth, but at the end we know in our heart of hearts that the behavior is just wrong.

I feel your comments were needed and appreciate you for sharing another story of a lender who just went too far to secure a loan and did not care about the end user who is the client, the customer and the consumer. These are the people we are hired to help, protect and advise and I admire you for educating your client and taking all the necessary steps.

In the end your client was educated about all the ridiculous issues CW put them in and decided to pass on purchasing that home. In the end CW lost another home from getting sold because of their ridiculous business practices.

What did our market and industry gain from this? Another home that is still on the foreclosure list.

Garythen we just agree to disagree. I can just tell you that most of the time we are issuing pre approvals and the loan is funded by someone else. All loan officers are not created equal and we all have to deal with competition in some way or another. In my opinion you and others are making more of this than you need.

Jay,

I can agree to disagree.

In my opinion you and others are making more of this than you need.

Anytime you deal with some practice that is borderline unethical and controversial you will have a lot of different opinions.

I also can respect any loan originator on their own merits. I have a lot of friends who either work at CW or have in the past and they are professionals all the way. We all know there are bad ones in all companies.

Thanks again for your comments

FEB

I just had something interesting happen to me today...I have a borrower who is pre-approved, ready to go, we've tried on a few homes but the area she's looking in, the good deals are going quickly. We found a great house, offered 10k over and when the borrower's agent called the listing agent said he wouldnt take an offer from my company, so they agent says ok, how about Chase, he tells her he's had trouble with them before and the only way she's going to get this offer accepted is to use his lender. After going back and forth for a day the borrower decided to go with the other lender ( at .25% higher) so she didnt lose the home.

How can I compete with that?? The borrowers agent deals with the same back and doesnt want to switch up lenders based off the accepted offer due to the fact that she has to deal with them and does not want to get a bad name out there. I really want to see the borrower get the home, so I'm not going to make any waves, but after that, what's the best way go persue this isse??

Thanks in avance.

John,

It is up to the end consumer to file a complaint in your state with the banking division that licenses this mortgage lender. The behavior is very unethical. If enough complaints get filed against this company, the state banking institution will investigate. There is not much you can do about it from our end. Now next year when all loan originators are licensed nationwide, we might have ways to file complaints on our own but for now the burden falls onto the consumer.

FEB

My Realtor sent me something today ( see post below ) so I was doing some research and came upon your thread. John in the thread says that builders are being cracked down on by HUD but this is only because they act as both the agent and the owner of the property. They don't hire real estate agents to sell their property. Because banks are the owners of the property they should be able to do anything they want in terms of negotiating the sale. If you dont like the terms then dont buy the home. Negotiate a lower purchase price to make up the higher rate they may charge. Yes the banks are being very Machiavellian in their business dealings but if I was losing thousands on an asset I owned I would try and minimize my loss also. I haven't lost many deals to banks and haven't seen them yet say they need to actually use them or lose the home but they do put the pressure on the buyers. Since I have built up a good rapport with my clients and give them great service and pricing I keep the client. There is competition coming from every angle because people are not raking in the money they used to. If you go to the baseball park do you not have to buy their food and drink their high priced beer? If you dont want to pay a lot of money for their beer don't go to the game or drink their beer. They own the ball park. Same if you dont want to buy the banks house. Go find another house. If its the best deal in town agree to thier conditions. Is this unethical? Its business! Lets all just keep getting business with better service, better rates and do our jobs. Create value!!

See the posting by my agent below:

Subject: Clarification of information provided by the Real Estate Commissioner Jeff Davi, at Rancho Southeast luncheon

REO Agents and the way in which they are handling transactions.

In reference to a lender/seller's ability to require a buyer to use a certain lender through the listing agent; there is nothing in the California Real Estate Law that makes such a requirement illegal. It is literally a term or condition of the purchase agreement, and if a seller insists on a certain lender, then the buyer needs to consider that as part of the negotiation. The buyer may certainly elect to use any lender he/she wishes, but the seller may also elect to reject or counter the offer with the lender that the seller is insisting upon. Until one of the parties accepts or concedes on this point, they don't have a deal. For a buyer who refuses to use a seller mandated lender, it may be that the buyer cannot ultimately purchase that home. It is all considered a negotiation of sale.

MAR

I wish a class action law suit would be filed against CW. Agents should encourage buyers to make complaints to the State Attorney General.

CW is clearly unethical. I'd like to think they are violating RESPA since Gary made a point that makes sense to me.

Jay, a CW employee, seemed to say that CW would take a lot longer to approve an offer on an REO for another lender or did I read that wrong?

It is an invasion of my buyers privacy to be forced to get a pre qual with CW. A buyer's agent is supposed to keep the financial information about her buyer confidential. It's not confidential if the buyer is required to give it to the seller. It removes some negotiating power from the buyer. If CW knows that a buyer can afford more does that mean that CW will counter offer and ask for more money? If CW knows that the offer is the absolute highest that the buyer can afford willl CW take the offer that is low?

When a buyer requests a pre approval letter for a certain amount the broker puts the amount that the buyer can afford which is often higher than the amount they want to borrow to buy a home. There is a difference between what the calculations say a buyer can afford and what a buyer may want to budget for their mortgage. Many buyers today want to buy below their budget so they are comfortable with their payment and have money to go out to dinner, buy Valentines Day gifts, etc.

CW has taken up to a week to get the pre qual letter to the buyer and other lenders can do it the same day.

CW requires a $1,000 deposit for offers less than $99,999, $1,500 for offers between $100,000 and $199,000, $2,500 for offers between $200,000 and #499,000 and $7,200 for offers above $500,000. The earnest money deposit must be by Cashiers Check, Money Order or Certified check. This is an inconvenience to buyers making an offer that is not accepted when they are actively searching for a home to buy. Their deposit can be tied up for 10 days.

The addedums are ridiculous. 24 pages or more of single spaced pages. This makes a buyer feel fantastic. After dealing with some homes on the short sale side and then encountering them later as an REO priced $100,000 or more lower agents know there are issues. The addendums waive all liability for everything even when you know that CW has been informed of problems with the home they do not disclose. CW has an addendum that says the buyer can only get their EMD back during the inspection period for a 'major repair.' More ethical wonderful treatment by CW. Sometimes a problem is not 'major' to me or 'major' in terms of money, but enough to make a buyer not want to buy the home and they should be able to get their EMD back. And what about my out of state buyers making offers on CW properties they have never seen? There are only so many plane tickets a buyer is going to buy so they can make an OFFER. The out of state buyers often have cash and they have to be pre qualified with CW. It's outrageous.

If I had my choice I would "unclick" every CW property in the MLS because of this strong arm tactic and never send one to a buyer.

CW offers a free appraisal and no charge for the credit report if you use them. I guess other mortgage brokers could offer that... oh yeah other lenders don't have the power, influence and money! Other lenders choose not to or don't have the power to force appraisers to take a 50% pay cut and then the audacity to mark the appraisal up 100% plus an extra $50 bucks. You can join the class action law suit against CW by clicking here http://www.hbsslaw.com/ if you were forced to buy one of these marked up appraisals or you are an appraiser that was forced to sell them 50% off or forced to alter the price or some other unethical horrendous treatment that falls under the Complaint (class action law suit). Simply click on the link to "join a suit." It takes 20 seconds.

The law firm is Hagens, Berman, Sobol Shapiro. The case is Carrol and Gregory Clark vs Countrywide Home Loans Inc, Countrywide Bank NA, Landscafe Appraisal Services and Landsafe Inc. The class action suit is filed in the Western District of Seattle Washington. The case number is C09-0036.

MAR

Maya, you have it wrong it more ways that I can count. Bottom line is you are in control. You control what properties your buyer reviews, your lender recommendation and so on down the line.

You will have greater success in getting what YOU WANT, by spreading more honey and less vinegar.

By the way I received a notice you made a comment on my blog, but when I go to respond it's not there. Did you go back and delete it?

Jay

Maya and Jay,

Again this issue comes down to basic ethics and protecting the image of our industry. These type of tactics that big lenders use to move their inventory is just down right "Steering" in my opinion. CW does have the right to use these tactics, but the trust with the public will be damaged in the long route. At the end the buyer does have the right. However, these tactics are just not good for our industry and are borderline RESPA violations plain and simple.

Jay I hear your argument, It sounds like you are a straight honest lender, but your company has adobted some practices that I feel is disgraceful to the real estate market.

Thanks again for the comments.

Hi Jay,
I did make a comment and then I realized that it doesn't matter if something makes sence or what the facts are you are going to have your own belief so there is no point making a comment on your blog.

I choose to be respectful of all AR members. When I started to comment on your blog I was just communicating about the issues. Then I thought about how you might feel and decided it wasn't important for me to express my view on your blog.

I don't want to offend anyone, especially on their own blog. Life is too short to upset people if it can be avoided. I respect you as a person and you are entitled to your own views.

Again, I must agree with Gary. CW is unethical. Buyers hate dealing with CW. Sellers hate dealing with CW. Many agents hate dealing with CW. It's a hassle. It's unpleasant. You feel like you are getting strong armed or your buyer is getting strong armed or your seller is being taken advantage of. Working with CW is like trying to play with the school bully. We all have to tolerate the school bully, but a part of us wishes he would move away.

Maya - AMEN! I second that motion. I assure you, you're not the only one who feels this way. So many people in the industry feel exactly the way you do. While I agree with you and Gary, I will also respect Jay for his own opinions. He's entitled to them just we are with ours.

MAR

Hey Gary,

It is Chris Davis, good to see you in Las Vegas and I hope you are doing well. The Blog we discussed when we had been out in LV, and of course it is still going on, but CW will be Bank of America soon as the Name keeps getting beat up!.. The best thing to do honestly is to provide your clients with a Credit Decision from your AUS or LP or CLUES and send it to the Loan Officer yourself. I have received several LSR's this way and like the Jay Willaims of Countrywide as he is a good person would rather see the borrowers AUS decision and move on and provide the letter for the client. It is funny as if you talk with most CW asset Mgr's they want to run when they see that the Loan Officer is from CW. They can't close a loan in 90 days right now!!! So I think we have a leg up and I think the REO Agents are feeling the pain as well.

So cut thru the redtape CW, your paying the closing cost anyway so who cares that your paying the Appraisal and Credit you do anyway!!! We are trying to move the properties in AZ and the rest of the Country and not have the Buyers go thru another gate to get to the end!!! Be real and support your markets, Wells Fargo is doing the same, and I have had several buyers call me as they couldn't even get in touch with a rep from either Bank!! So be responsible and answer your phone and provide the pre-approval letters in a timely manner. Also, to those REO Agents it is time to start accepting the offer that is closet to the list price!!!! You are going to get burned as the appraisal will be close to list price!!!! Also, what is the point of accepting multiple offers, to discourage buyers!!!! oh yeah your representing your clients, thats why you have 500 listings because your representing them so well!!! Take an offer move on, sell the inventory, make your money and move on!!!!

MAR

It is "steering" and it is unethical and completely absurd!!! I understand that Sellers would like to ensure that buyers are ready AND ABLE; however, this can be done by ANY DIRECT LENDER!!! This has absolutely nothing to do with ensuring buyer capabilities!! They're promoting their loan products!!! I had a Wells Fargo lender tell my client that he could beat her Colonial Bank quote and she informed him, on several occasions, that she would use her preferred lender. She basically felt as if he was trying to pressure her into purchasing their product. So, we contacted another Wells Fargo Sales person in request of the elusive pre-qualification letter and this was the email the he forwarded to my client...

Prospective Client,

It was a pleasure speaking with you and discussing your possible options. The opportunity to earn your business is exciting and appreciated. The attached 5 Star Concierge Service outlines our commitment to quality communication throughout this process.

In order to complete your application and submit your file into underwriting we need the following documentation. Please fax or overnight this documentation within the next 72 Hours, failure to receive these documents could potentially delay your closing. Please note that we may request further information after the underwriter reviews the file, however these are the documents that we know are required. These documents must be provided for all individuals who will be on the loan:

Pay Check Stubs covering the last 30 days (if paid bi-weekly please send your last 3 pay stubs)
W2's from all employers for last 2 years
Bank Statements for the last 2 months for all your accounts...Check, Savings, Money Market or Retirements Accounts - Please Send all Pages even if blank!
Copy of Social Security Card
Copy of Drivers License

In addition, we are required to pay the VA appraisers at the time of service so we ask that you mail a check made out to Wells Fargo Home Mortgage for $375 or you can fill out the credit card authorization form.

If you should have any questions, please don't hesitate to call me at any time, I am here to help.

We strive to make this home buying experience as stress free as possible and we ask that you let us know what we can do to help achieve this. You will be surveyed after closing and it is imperative that we receive all 5's! Thanks for your time and the opportunity to assist you.

I respectfully informed him that a request of this nature would compromise my client's leveraging position and IF this was the only way to secure a pre-qualification letter from Wells Fargo (which is required to purchase Wells Fargo owned properties), then this practice is a clear violation of the Sherman Anti-Trust Act (eliminates competition).

This has to end and it starts with us!

Gary (& Vanessa) - I also feel that Wells is fast becoming the next CW when it comes to making offers on their REO properties. Personally, I am so sick of my clients being (as Maya called it) "strong armed by the school bully". It is so unethical and as many of us have already stated, a borderline RESPA violation and it does have to stop. Unfortunately, it's not going to stop until these bozos (CW & WF) end up in court for their practices.

Just recently, HUD issued a ruling on "Required Use of Affiliates" and defined "Required Use". A fellow AR member, Bill Arce, wrote a post about called RESPA and Builders With Affiliated Lender Relationship-New Changes- and although he was addressing how builders can no longer force borrowers to use their in-house lender in order to get the same incentives as those borrowers that do use the in-house lender, I believe the same ruling can be used in the REO offer situation.

Furthermore, the ruling goes on to state if the builder offers any incentives and/or credits, they must offer those same incentives and credits to every borrower regardless of whether the borrower uses the in-house lender or not. In other words, if an REO lender offers to waive credit and appraisal fees for those borrowers that use them to purchase a particular property then they must offer them to every borrower who makes an offer on the property.

Lastly, according to the ruling, the builder can no longer use incentives and credits to prospective borrowers as a means to use their in-house lender. In other words, REO sellers/banks can not insist that every borrower who wants to make an offer on the property must prequalify with their lender. As we all know, if our clients don't prequal with the in-house lender, our clients offers won't be accepted.

Like Vanessa said, this must stop and the best way to get it to stop is to see to it that these bozos that engage in this type of behavior are reported for their actions. We need to educate our borrowers on their rights and let them know that in order to protect their rights and ultimately, their privacy, they need to report these bozos to the proper authorities. Our clients need to know that this conduct is unethical and probably illegal now.

APR

Hello everyone, I have a question!

I am a mortgage professional, if I was to offer my family/friends/realtors a promise where I would write a check from my own checkbook for $100.00 to my referral source's choice of charity, is this any type of violation or RESPA Section 8 or any other sections? I'm not with a bank anymore and I'm currently a mortgage broker now with a mortgage broker firm.

Would love to hear everyone's insight and the actual right answer.

Nima,

Good to see you again.

I would tell you to check with your responsible Broker. I know RESPA Violations over $25.00 are investigated. I am not 100% sure if this would fit into that category or not. It sounds like it would not, but I would check.

APR

Hello everyone!

Im happy I found this posting. There is an important ethical issue at hand here. I'm a licensed real estate agent and I believe in educating the public I work with. When a client decided to make an offer on a bank owned property, I found that in-house preapproval was required. My client had previously been preapproved by a major bank several weeks prior. So when we disscussed the

APR

This is a very interesting discussion and I can see both sides. As more loans are falling through these days, sellers want to be as careful as possible on the qualifications of buyers before taking the property off the market.

Gary - I agree with Debra that there is a percentage of escrows falling out due to ineligibility of the borrower. However, and I don't know what it's like in other marketes, around here (SoCA), I see even more escrows fall out because of property issues and not borrower ineligibility.

So far this year, I've only had two escrows fall out and both were because of clouds on title that the seller/bank refused to resolve. Last year, I had three escrows fall out and once again, two were because of property issues that the seller/bank refused to resolve.

Part of this can be contributed to the fact that when I pre-approve a client, I go through an extremely thorough qualification process and when I issue a pre-approval it is an extremely strong pre-approval.

The one escrow that fell out last year due to borrower ineligibility was because in the middle of the underwriting process, the lender I was using changed their guidelines. I had to scramble around and find another lender for my client, which I did. So, although I didn't get to close the loan with one of my lenders, my client still closed escrow, just a little late and with a different lender.

MAY

I have a quick question. My mortgage process with countrywide was a huge nightmare. Charges that were not on the GFE showed up on the final docs that I had to sign at close of escrow. The branch manager even set me aside and gave me a check, after close of escrow, "for my troubles". Is any of this violation of RESPA?

MAY

It is the LENDER's responsibility to put a stop to the Seller's control Ultimately the LENDER has the funds, underwriting control and responsibility to meet RESPA, HUD, FANNIE, FREDDIE and all other FEDERAL guidelines.

As a LENDER the Seller can have any representation at the closing table they choose as long as the Borrower has the right to choose and the LENDER has the right to choose. We simply co-ordinate the Seller's wishes with our requirements. Note I said requirements. The Lender is not a party to the contract and as long we meet the mortgage insurer quidelines-primarily FHA's-I could care less what the contract says, the Seller wants or agents need.

As for the required pre-qualify they are not worth the paper they are written. Until you have a full loan applicaiton with all doucments and a proper appraisal, the Lender is not committed to anything. I would be nice if the Agents would get off this pre-qualify bandwagon and get back to the reality that a loan approval takes time and effort to process properly and it cannot be done by the person taking the loan applicaiton.

All said, Lending has been taken away from the LENDERS and placed in the hands of the Sellers and Agents by the LENDERS. Our need to please and compete has overwritten our responsbilities. I would never think of telling my banker how to run his bank, why do the Seller and Agents think they can tell the Lender how to run the loan process.

It is exactly the kind of behavior the Countrywide is exhibiting-NOW REALLY BOA-that gives the whole industry a bad name.

MAY

Mary Ann White- Thanks for the comment, it makes sense to me.

MAY

Hello Gary,

I have worked for one of the big box banks for the last 2yrs of my 18yr originating career. I just wanted to weather the storm that was brewing in the beginning of 2007. I won't be working there much longer.

I wanted to bring up an issue that may not have been brought up yet:

A buyer losing out on making an offer due to the fact that a branch of the big box bank did not have the staffing or even knowlegeable loan officers to complete a timely back up prequalification.

I can tell you that there are a good many borrower's that call into our branch and are not serviced within the time constraints needed to have their offers considered. THEY LOSE! it's not fair and I am waiting for someone to hire " Larry Parker" to teach the big box companies a lesson.

I have countless fellow colleagues from different competitors call me all the time for a favor to issue these back up prequals. It's a complete waste of everyone's time. If a bank / asset mgr is concerned about the qualification of a buyer, then have them pony up a bit more earnest money and remove finance contigencies within a week.

One last thought: If you are able and have access to an FHA DE underwriter, have them sign off on your pre-approval letter. I have done a few HUD REO properties lately. HUD requires a DE underwriter to sign the "Revised Letter of Commitment" Just like in the good ol' days. I send my findings to my favorit underwriter with the financials and she will sign my letter lickity split.

The BofA (formerly CW) office here local, as well as our office accepts DE signed approval letters just as they would a loan commitment letter and will not require the borrower to submit an application and jump through hoops.

Thanks,

JUN

Attention everyone: This is not a hypothetical situation, this happened yesterday to me. We submitted an offer on a REO home with a approval letter from that listing's office in house lender. The listing agent has it in our MLS that the must get preapproved with Bank of America. We submitted an offer on Sunday with a preapproval letter with the listing agents in-house lender. The listing agent called me on Monday saying that the buyer must get preapproved with Bank of America (who is also the seller) and get a preapproval letter before they will even look at the offer. The buyer calls Bank of America Monday morning to get preapproved, but apparantley there were some delays in getting the preapproval letter. Listing agent emails me Monday evening telling me that if we don't get the approval letter from Bank of America to her by Tuesday morning the offer would be automatically denied.

Here are my thoughts: It's one thing to ask someone to talk to a particular lender to get a preapproval letter and it's something completely different to tell someone we are not even going to consider your offer if you don't talk to this one particular lender and it's going even further (violating the rules on steering) to reject that offer without looking at it because you are not talking to that one particular lender - if that isn't steering I don't know what is.

I would appreciate any thoughts on this or information to support my opinion if you agree with it.

John,

First you have to realize that it is not illegal to "steer" someone to a lender, title, inspector... it is illegal to steer someone to or away from a neighborhood based on a protected class... Two different things.

Now, more directly to you point. The seller, in this case BOA can make whatever rules they want... if they say they will not look at your offer unless you spray it with perfume and have it delivered by carrier pigeon... then they are free to do that... May not be a good business decision but it is NOT illegal.

Look at this from BOA stand point. Why, when they have the ability to verify, would they take a property off the market if the buyer can not get financing... THEY can determine the qualifications of the buyer. The BUYER is then free to CHOOSE to use whoever they want to do the loan... just HAVE to get pre approved with BOA.

If I were in their shoes I may do the exact same thing. They are limiting their risk...

This is nothing new and acting as good buyer agents we should all explain this to our buyers right up front... I know that is what I teach my buyer agents to do... The buyer knows the "rules" and there are no surprises... if you are making an offer on a CW or now BOA REO then you should know the drill...

Don't make a big deal out of it just do it and then have the buyer use the lender you suggest or they already have...

Right???

JUL

I stumbled upon this blog and has to add my own 2 cents, as I too have seen this practice all too often here in southeast Virginia. I agree that this practice is a violation, and the government needs to step in and get a handle on this illegal action now!

Look at it this way... there's a home seller, selling his own house, and he's also a loan officer with Slime Lending, Inc. He markets his home in the MLS, but states he will only consider offers if the buyer uses him/Slime Lending. That's illegal, period!

JUL

Great blog topic. I am a buyer going through this right now. The seller of an REO home has a 50%+ interest in my lender. I was told that my offer would not be considered unless I was pre-approved with the affiliated lender. I had already been pre-approved through my own mortgage broker. I was offered a good deal from the affiliated lender so I accepted it. Now, roughly 50 days later, I am 100% ready (and have been for over a week) and the lender hasn't coughed up the loan package. Now that we're past the closing date, I can't reasonably switch lenders right now because the seller wouldn't accept any delay longer than what he is imposing on me. So I am stuck waiting on the seller/lender. To make it even worse, the lender made me insure for the entire value of the loan, which is illegal in this state. State law prohibits a lender from requiring insurance above the value of the improvements on the parcel. I decided to hold off on this problem until after closing so as not to give any excuses for the seller to continue his delay. Any suggestions for me to speed up the closing? What recourse do I have if the seller/lender backs out at this point? How many days would I be allowed to get another lender to closing?

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