Joint ventures between real estate agents and mortgage brokers, also known as in-house loan services, are once again gaining popularity among home buyers as the United States housing market recovers. These joint ventures were once considered to be very profitable for operators and a good option for house shoppers; these days, however, the regulatory climate and options available to house shoppers and borrowers are forestalling the success of new real estate and mortgage partnerships.
In a recent New York Times article, real estate writer Lisa Prevost cites several industry professionals and analysts who recommend house shoppers to adopt a "buyer-beware" approach to real estate brokerages that offer their own mortgage origination service. Despite the radical change in business practices and regulations in the wake of the housing market collapse a few years ago, several real estate and mortgage joint ventures are still applying questionable tactics that are not always beneficial to their clients.
During the housing market bonanza of recent years, close business relationships between real estate agents and mortgage brokers served as valuable marketing tools. They essentially worked as a sophisticated business referral system, and they appealed to home buyers who enjoyed the convenience of dealing with a single office for their real estate and financing needs.
Prior to 2008, several one-stop shops across the U.S. were scrutinized for their questionable kickback practices and high closing costs that lined the pockets of real estate and mortgage professionals at the expense of home buyers. The scrutiny resulted in investigations and prosecutions that ultimately lead to a change in federal and state regulations to prevent steering and kickbacks; however, million-dollar settlements and fines were still being assessed on real estate and mortgage brokerages by the Department of Housing and Urban Development (HUD) as late as 2012.
The New Tactics
In regional housing markets such as Phoenix, Las Vegas and South Florida, some real estate agents are getting creative in their joint venture marketing. They are telling their clients that using their in-house loan service may be the best way to convince a seller to choose them among multiple bids on a single property. Others are promising to slash their fees in exchange.
HUD disclosures remind home buyers and borrowers that they can always looks elsewhere for their real estate and home finance needs. The difficult mortgage lending environment makes efficient home loan one-stop shops more attractive, but borrowers always have a choice these days. Lower purchase fees do not guarantee the smooth processing and closing of a mortgage. In the end, the idea of in-house loan services may sound convenient, but they are not always the best options for borrowers.