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The Crash of Mortgage Leads and the "New Trick" That MAY be a RESPA Violation

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June 13, 2007 02:02 AM

Sticking to a policy of not buying mortgage leads for several reason, not the least of which we are busy with real leads, I never had any intention of participating but I did have a lot of questions about the phone call I received in February 2007. Normally I tell the caller I am not a good prospect and attempting to persuade me will be a waste of your time and mine. This call started something like this, "Hi, this is Steve from ____________. We know that mortgage leads are a joke but would you pay $300 for a lead if the loan closed?"

My response was quick and to the point, "Absolutely not. I would never pay for a referral. This is a direct and blatant violation of RESPA."

Steve's response was very interesting and certainly convincing to the less skeptical and more starving mortgage companies and loan officers. "Ken, you never pay us directly for a referral. You would deposit $2000 in an escrow account and when you close a loan you let us know and it is not until then that we would take the $300 from your account. Our legal department has assured us this is not a violation of RESPA."

Really? Wow. I don't believe it. In fact I still have little doubt this is a direct violation of RESPA and I refuse to be the first one to try it out in Federal Court. Due to the fact that these advertisements are not secreted and the websites make it plainly obvious what the lead companies are doing I would imagine it is only a matter of time before charges are filed, defenses are planned and mounted, hundreds of thousands of dollars are spent on legal defense and prosecution, only to have the judge say, "Which part of payment in exchange for a referral is a violation of RESPA?"

It reminds me of a former President who is infamous for saying, "it depends on what the definition of 'is' is" And later, "I did not have sexual relations with that woman, Ms. Lewinsky."

Basically their pitch works like this, "You place the deposit with us and you get 100 leads. If you call all of those and do not close a loan you get 100 more ... until you close a loan. Your money just stays on deposit until the loan closes and we trust you to tell us when you've closed a loan. Simple, right? Ready to get started? I can put that deposit on your credit card ... "

Uhm, no.

And, imagine this, I found a mortgage company with an advertisement online saying they will pay 25% for every lead that closes: "We will pay you 25% of every deal that closes. All leads must be exclusive to us. We DO NOT pay per lead, so don't ask. Only bid if you are serious, and have experience in this calling area."

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R. B. "Bob" Mitchell - Loan Officer Raleigh/Durham

Bank of England (NMLS#418481) - Raleigh, NC

Bob Mitchell (NMLS#1046286)

Interesting. I had never thought of it that way. I don't buy leads and the ones that I have been offered have all been X number of dollars per lead, not contingent upon them closing, but you are probably right. If they get paid a fee that is contingent upon them closing, it would have to be disclosed to the borrower and appear on the HUD - 1. I'll have to check into this more. I would be curious if any real estate attorney's reading this have anything to say on the issue?

Also, not to get political here, but if you watch the entire deposition of President Clinton the prosecutor gives a very narrow definition of what sexual relations are. In response to a question from President Clinton, the prosecutor states that they are using the same definition of sexual relations as previous stated earlier in the proceedings (I believe) which limited sexual relations to being intercourse and nothing more. Per that definition, President Clinton DID NOT have sexual relations with that woman and he did not perjure himself. He might have split hairs, but he did not perjure himself!

The media seldom shows the entire deposition, but it is available on the net.

Bob Mitchell

ValueList Real Estate Services, Inc.

Jun 13, 2007 02:21 AM

Ronnie Roach

PrimePay Business Services - Kill Devil Hills, NC

This is crazy. I have had a few calls lately and I keep explaining this is a violation of RESPA. I get the same response - Our legal team has reviewed the laws and there are no problems. No thanks.

Jun 13, 2007 02:21 AM

Robert Walker

Remax - Buford, GA

Same response here, they say its no violation. But still its nothing Im interested in.

Jun 13, 2007 02:26 AM

Ken Cook

Content, coding, marketing, host. - Marietta, GA

Content Marketer/Creator

Bob - I'd rather have a litigating attorney who specializes in RESPA to comment but I get your sentiment. Thanks for your comment!

Ronnie - keep it up and we won't see HUD vs. Roach anytime soon!

Robert - they do make it sound appealing but good guys like you stay away from smelly offers.

Jun 13, 2007 02:33 AM

Ronnie Roach

PrimePay Business Services - Kill Devil Hills, NC

I can't respond to Bob because the doctor told me to lower my level of stress.

Jun 13, 2007 02:41 AM

Anonymous

Leadco

Bob -- I was going to work with a broker like you for my mortgage but I decided to go with a REAL mortgage company like Wells Fargo Mortgage.

That sounds pretty crappy doesnt it? -- just like you saying you don't buy mortgage leads because you are busy with REAL leads.

Good luck in this business - you are going to need it with that narrow minded attitude. A great deal of great companies do very well with Internet leads and have a sales and marketing team that can help the millions of homeowners who trust lead generation sites and NOT your site. How many homeowners in your own town even know you exist?

Jun 13, 2007 07:54 PM

Ken Cook

Content, coding, marketing, host. - Marietta, GA

Content Marketer/Creator

Ken Cook is NOT a little man Leadco, If you're talking to me first of all my name isn't BOB. My name is KEN COOK. And in response to your questions about how many homeowners know I exist? THERE'S THE PROBLEM WITH EVERY LEAD SOLICITOR WHO THINKS THEY CAN GENERATE MY COMPANY'S LEADS BETTER THAN MY COMPANY - I DO INVESTOR LOANS! I DON'T DO MORE THAN 200 or 300 HOMEOWNER LOANS IN A YEAR AND DO NOT REALLY WANT TO. HOWEVER I would say the obvious answer is THOUSANDS AND THOUSANDS of people know the name of my company in my area and throughout the nation and actually we ARE a real mortgage company like the one you mentioned only with vastly more loan products. Same license, better products.

Now let me tell you the difference between MY leads that I generate through RADIO, TELEVISION, NEWSPAPERS, ONLINE, LIVE APPEARANCES and a vast network of AGENTS and BUILDERS: When my phone rings someone is calling me about MY SERVICES and THEY WANT TO BE A REAL ESTATE INVESTOR. Not like the crap lead generators provide where the people weren't even thinking about refinancing or buying and couldn't qualify if they pooped gold. Not like the crap where we call and they say, "I wish you blankety blank mortgage people would quit calling me. We refinanced 6 months ago and I still get 5 calls a day!" My inbound calls are HIGH CONVERSION RATE not this hours of wasted time calling leads that have already been hacked to death. Not competing with every little broker working out of their dining room and closing loans for $5. Not having to worry about what the lead operator said to the client.

Narrow minded? Oh, I opened it once to the tune of $5000 on leads. CRAP. TOTAL CRAP. Had I spent that same $5000 on radio I would have had a MINIMUM of 20 callers who were ready, willing, able AND looking for MY NICHE SERVICES and you have NO IDEA about my operation which is highly evident from your nasty comments. If you would have OPENED YOUR EYES AND READ THE POST you would see I did NOT attack the LEAD INDUSTRY only the ones who think lenders paying only on leads that close is not a violation of RESPA. I simply said there are several reasons I PERSONALLY do not buy leads because they are not REAL LEADS FOR MY COMPANY. But now that we're really talking I think MOST lead generators are SPAMMERS who know NOTHING about the MORTGAGE INDUSTRY and the laws that govern us - but I didn't say that in the ARTICLE. And if you WERE talking to BOB and not KEN COOK then you are still off because BOB didn't say anything negative about the INDUSTRY EITHER. I see you're not a member here so you have hidden behind anonymity.

So I'm assuming your one of the "Lead Generators" who charges only when the loan closes and that's the reason for the PERSONAL ATTEMPTS TO BELITTLE ME? You really did a lot to persuade me and my associates to respect the LEAD GENERATION INDUSTRY.

Well done!

Jun 14, 2007 04:22 AM