Mortgages: An In-House Edge

The benefits of one-stop shopping.

January 1, 2008

The problems exposed in the subprime mess of the last 18 months have at least one silver lining: If you work for a one-stop-shop brokerage with an in-house mortgage operation, you possess a powerful tool to aid customers who otherwise could have trouble finding safe, affordable loan options.

As news reports have made clear, the poor performance of many subprime and Alt-A loans, particularly so-called 80/20s, in which borrowers put no money down and are not required to document their incomes, has triggered stricter underwriting standards and higher costs among lenders. These new standards, accompanied by increased scrutiny by federal and state regulators, are squeezing mortgage markets. That will limit the ability of some borrowers to qualify for financing.

Through your in-house lender, you can easily provide home buyers information on the range of loan options available, including fixed-rate loans and traditional ARMs, government-backed products like FHA loans, and safe nonconventional subprime loans.

Making Mortgage Sense

Equally important, given the convenience and shared objectives your in-house mortgage professionals can bring to a transaction, you have an unparalleled opportunity to help customers close with a loan product at a price point that makes the most sense for them.

At the same time, developing a productive relationship with reliable, on-site loan professionals can help bring even the most challenging transactions to an efficient close. Horror stories abound about sales that blew up at the closing table because a lender didn’t deliver as promised. These troubling scenarios are as avoidable as they are unfortunate. By collaborating with loan professionals at your brokerage, both sides can be alert to potential conflicts.

Keeping Buyers Happy

Independent research shows that home buyers who choose realty-based one-stop shopping are usually glad they did. A Harris Interactive survey of more than 2,000 home buyers found that 90 percent of those who didn’t use in-house services believe they would have had a better, more streamlined homebuying experience if they had. Among the reasons cited: They’d have preferred just one person to contact and liked the increased accountability. They also said they believed one-stop shopping would be speedier and would offer a potential for savings.

Here are some suggestions for encouraging customers to work with your in-house loan originator. When they announce to you, “I’m already prequalified,” don’t let the matter end there. You might respond by saying, “As a free service of working with my company, I’ll have our in-house lender take a look at what you’ve been offered. We make it a point to have competitive programs, rates, and fees. When would be a good time to have my loan officer give you a call?”

Of course, as with any in-house referral, including title insurance services, you must make it clear you’re simply offering customers another option, in accordance with the consumer protection rules of the federal Real Estate Settlement Procedures Act. Such affiliated business arrangements require you to provide consumers with written disclosure about the brokerage’s relationship with the in-house originator at the time of the referral.

Also under RESPA, keep in mind that real estate brokers can’t receive referral fees from in-house mortgage services providers, though indirect compensation is allowed based on the financial growth of the brokerage’s ownership stake in the affiliated mortgage or title company.

The bottom line is that you have the tools to succeed even in today’s challenging mortgage climate. Are you sure your customers know that?

Writer Virginia Cook is the CEO of Virginia Cook of Texas, REALTORS®, and ex-officio member of the NAR Real Estate Services Advisory Board.