Hiring Real Estate Agents

The refinance boom is long over. Mortgage brokers are looking for every piece of business they can find. Many are contacting customers with whom they have already done business. Others are looking at different relationships with real estate agents as a source of referrals. After all, in many purchase transactions, the buyers’ real estate agents help their clients find a mortgage by recommending a lender or a mortgage broker that they have worked successfully with. Can a mortgage broker hire a real estate agent to act as a loan officer?

It depends. In many states, this relationship is not prohibited by the banking department or the real estate commission (or whatever the agency that regulates real estate agents is called in your state). No matter what relationship you have with a real estate agent, you must make sure the arrangement is compliant with the U.S. Department of Housing and Urban Development's RESPA (Real Estate Settlement Procedures Act) in regard to fee splitting. What’s key to staying in compliance is that the real estate agents do more than just make a referral to the mortgage company. Among other things, they must be made an employee of the mortgage broker (even if only a part-time employee). Indeed, even if the real estate agent performs actual loan officer functions so that there is no question of whether all fees are properly earned, the customer must sign a disclosure statement so that your company is protected against RESPA violations and the customer understands that the real estate agent is wearing two hats. Texas even has a form on its website for mortgage brokers who are also acting as real estate agents or as an attorney in the transaction.

An important RESPA guideline is that all parties involved with the transaction must actually earn the fees that will be charged to the buyer/borrower. Many real estate agents do some of the work involved in the mortgage transaction to ensure that their transactions close, including tracking the loan. By hiring a real estate agent as a loan officer, you can offer them the loan origination commission on top of the real estate agency fee they have contracted for with their customers and clients. But you will now be assured of getting the referral that might have gone to another mortgage broker with whom they also had some sort of relationship.

In some states, you will have to license the office where the real estate agent is originating loans as a branch location of your company. Additionally, if the real estate agent is not an employee of your company, he or she must have a mortgage broker license or be exempt from the licensing requirements. Finally, because there are potential confidentiality and conflict of interest issues, it is best to address how you will handle those situations before they come up.