"Have you heard of the term, 'organized crime?" one reader asked, in commenting on the state of the industry today. "They are bad news bears and are eliminating legitimate unbiased businesses," another reader said, remarking on the proliferation of affiliated business arrangements. It's time once again to take the pulse of the industry for our ongoing "What we're hearing" report. In a recent poll on RESPAnews, we asked, "How's the market where you are in terms of the number of kickbacks and RESPA violations you're seeing?"
Survey says...
"Have you heard of the term, 'organized crime?'" one reader asked, in commenting on the state of the industry today.
"They are bad news bears and are eliminating legitimate unbiased businesses," another reader said, remarking on the proliferation of affiliated business arrangements.
It's time once again to take the pulse of the industry for our ongoing "What we're hearing" report.
In a recent poll on RESPAnews.com, we asked, "How's the market where you are in terms of the number of kickbacks and RESPA violations you're seeing?"
Survey says...
Nearly 100 readers responded, with a full 60 percent saying, "They're increasing. Corruption is rampant here."
Just 12 percent said, "They're decreasing. People are paying attention to HUD's enforcement warnings," while 28 percent said, "They're staying the same. Some people still need extra incentives to do business and some don't."
One respondent said, "I am sick and tired of the regulators doing nothing about the blatant violations. I have been reporting violations to the DOC for years. They do absolutely nothing, and this is hurting my business."
Another said, "It's been around for awhile, but it seems to be getting worse."
Yet another stated, "Brokers continue to pay Realtors under the table or offer to pay them for each referral. Out-of-sight, out-of-mind theory: It's just you and I, and no one else knows. Meanwhile, legitimate brokers are being shunned. The bigger problem lies with the lead generators falsely advertising that the borrower wins when they apply and receive calls from four lenders. The problem is that those lenders have paid and thereby are not obligated to be competitive. Borrowers think they are applying to most online companies who are nothing more than lead generators who are selling their information over and over again."
And another added, "Let's all play by the same rules and make it a level playing field for the clients and the brokers to do business on a fair and equitable basis with straightforward truth and honesty."
State of the nation
Here's what we're hearing anecdotally from readers across the nation and across industry lines.
Disclaimer: We cannot confirm that any of these alleged practices are occurring, nor can we claim for certain that they violate RESPA. All reports were received from members of the industry in each respective state.
Arizona
"I encounter the bait-and-switch, kickbacks, etc. constantly in Yuma and, most importantly, in the Phoenix area with Phoenix lenders (primarily brokers). I chalk this unfortunate situation up to nothing more than greed."
California
"I have been a sales rep for the last 10 years in two different counties in California. The counties I work in are not as competitive as the larger counties in Southern California. I have seen many different title companies taking fines from the Dept. of Insurance and I have never seen a Realtor who is usually asking for the perks get in any type of trouble whatsoever. Why are the violations so one-sided? If the perks were never asked for, then it would never be a problem."
"What about all of the illegal kickbacks that are being paid to the brokers and agents for the use of the affiliated escrow and title companies? This problem is rampant, it must be stopped immediately. Consumers are being ripped off by having to pay higher prices to the affiliated companies so they can pay the illegal kickbacks to the brokers and agents. This is well known throughout the industry, but the regulators don't do anything about it. I am sick and tired of having to compete against this illegal activity."
Illinois
"Underwriter/lawyer/agent subterfuge only exists in Northern Illinois. Tell HUD to clean it up. The Illinois DFI certainly doesn't want to ruffle any feathers."
Indiana
"Brokerages are pushing their independent subcontractors to use their title companies, mortgage loan company and allow the sales agents to pick the one or two approved appraisers. The consumer doesn't have a chance in Northwest Indiana."
Kentucky
"I was told secondhand that HUD was in town investigating rumors of kickbacks from a mortgage company to Realtors in Paducah. I don't wish ill to them, I just would like the playing field level so we little people can play, too! Supposedly, for every loan closed with them, they would give them $150 in 'advertising' money. I'm not one to stick my nose in other people's business, but it's at the point where it's affecting my business also."
Ohio
"One large underwriter closed a large AfBA with the second-largest real estate company in Columbus, Ohio, and the Realtors just move down the road to the next company that will create a sham business to put money back in the prohibited entity's hands. Title insurance, although a commodity, is a service industry and we need to get back to that. Realtors and mortgage lenders make the largest gross revenue per real estate transaction. I would not be disappointed at all to see AfBAs or joint ventures go away. They are bad for the consumer."
Oklahoma
"Oklahoma is corrupted all the way to the state capital and no-one seems to be interested in bringing it to a halt. At least a dozen questionable LLC's exist in Tulsa alone between Realtors, builders, title insurance companies, closing companies and lenders. The state insurance commissioner and the state attorney general have been notified for years but always turn a blind eye once the Realtors stop financing their re-election campaigns. Oklahomans are being swindled out of millions of dollars every year, but we can't get any help. HUD really needs to crack down on the big insurance companies that are allowing these practices to continue."
"Sham AfBAs are going on in every state. In Oklahoma, I am constantly in competition with my own underwriters. The nationwide title insurance companies are taking over all the business in every state and we feel helpless to do anything about it."
"I've been screaming about this for three years and noone listens. The agents are conflicted over whether to get the best deal for the customer or put more money in their own pockets. There are too many of these illegal AfBAs across the country, but how can they be stopped? The big Realtors and builders have found an unregulated industry and are ignoring every aspect of RESPA, and it is all being blessed by the underwriters and our spineless insurance commissioner. I am fed up with the level of corruption. The public has no concept of what is happening and the bad guys and their attorneys are capitalizing on that ignorance to win the war and continue to take hundreds of thousands of dollars every year in illegal kickbacks."
Pennsylvania
"My business has been greatly damaged by sham AfBAs that don't do ANY of the title work, let alone perform 'core title services.' Unfortunately, I am in a small town and turning in the offending parties is tricky."
Massachusetts
"Kickbacks by lawyers to lenders is common in Massachusetts -- typically $100 per closing. Is this not sharing legal fees? Kickbacks to lenders by appraisers is also commonly known in Massachusetts, New Hampshire and Connecticut. Is this not the lender getting appraisal fees without a license? We see no end to the practice."
Michigan
"Michigan is out of control!"
Nevada
"Several real estate companies in the Las Vegas market are ties with mortgage companies. That is not so new, but when they are recruiting agents, their fees are so low that it concerns me that they are subsidizing the cost for the agents' fees on the real estate side with the mortgage fees. This to me would be an influence to the consumer even if they disclosed they were receiving compensation from the lending side. The consumer acknowledging the compensation may do so unknowingly or is lead by the agent in a manner that is not apparent to the consumer and are actually paying more for the cost of the loan to subsidize the agent's or broker's overhead cost of doing business. One company also was advertising 125 percent commission on the sale if tied with a mortgage from the company. New homebuilders do this all the time with their lenders offering incentives only through the in-house lender. My thought is that if this practice is allowable, that we should do the same to stay competitive in the marketplace, although I do not believe this to be in the best interest of the consumer, and would violate the fiduciary responsibility of the agent and the broker."
Texas
"RESPA violations are plentiful in the Dallas-Ft. Worth area, as many Realtors do not disclose anything and some mortgage companies are receiving gifts from appraisers to get more of their business that is not disclosed by either party."
Virginia
"A problem that I continually see in our market lies with CRESPA (Consumer Real Estate Settlement Protection Act) - approved settlement companies marking-up fees. Typically, I see the surveyor's fee increased $100+ with the HUD line reading 'Survey to Sam Surveyor/XYZ Settlement Services...$400." Having made inquiry of the surveyor, I was able to confirm that his invoiced fee was $300. Same thing occurs with the abstractor's fee. Fees are charged for the preparation of the R-5 form (a Virginia-required seller form ONLY if the seller is moving out-of-state or is an out-of-state resident) even if the seller is a Virginia resident and not moving out-of-state. The most disturbing thing that I see is the marking-up of title insurance rates beyond the normal rates found in Virginia. What I encounter are companies charging no or a minimal settlement or closing fee and then marking-up the title premium $250-$300. We also have a situation where a particular title agency whose primary stockholders are various local banks. Loan officers are paid bonuses by the bank for every loan that is insured through the bank-owned title company. Borrowers are given a very lukewarm choice of competing title companies and, on occasion, a loan is approved with an unwritten agreement that the borrower will use the bank-affiliated title company. Title companies having affiliations with local Realtors is an ongoing problem. Sales agents are highly pressured to use the broker-related title agency. The current situation is making it harder and harder for us to compete. I have never complained about competition but the playing field is not level. My choice to remain competitive is to break the rules. I have no desire to encourage this cancer that is destroying our industry."
Insert your state here
Do you know of suspicious things going on in your local marketplace that you'd like to see investigated?
In order to report a RESPA violation, you should send HUD a written complaint describing the practice that you believe violates RESPA. The complaint should include the names, addresses and phone numbers of the alleged violators. HUD prefers that you also include your name and phone number in case an investigator wishes to ask further questions. You may request confidentiality. Send the complaint to:
U.S. Department of HUD
Office of RESPA and Interstate Land Sales
451 7th Street, SW, Room 9154
Washington, DC 20410
You can also reach HUD's RESPA division by phone at (202) 708-0502 or by e-mail at hsg-respa@hud.gov
You may also wish to send a complaint to state and other federal agencies that have the responsibility for regulating the settlement providers engaged in the referenced practice. As far as we know, there is no way to know if a company has already been reported, because the agencies won't release that information until after an investigation is completed.
