In short the rules that Congress put in place referred to as RESPA were designed to circumnavigate the thousands of small syndicates of real estate professionals that had conspired to bilk the home buyer out of as much money as they could without being detected. RESPA has nothing to do with online lead generation unless there is a payment made on a transactional basis for the lead to an unlicensed real estate professional.
Online companies have tried to get around the rules for years but have found it difficult to do so. Then the housing market crashed and paranoia spread like a virus at a “share a needle clinic” as compliance officers began to strangle the revenue generators in order to not be caught on the wrong side of rabid banking regulators reacting to the worst financial fix since…forever.
If you are reading this and you are not a real estate professional you may not know what RESPA stands for but believe it or not you are reaping the rewards of the thousands or perhaps millions of homebuyers that have come before you and the pain that they felt when they ran up against a real estate agent or lender that was in collusion with another professional while the home buyer or seller was not looked at as a client but as a target.
The Real Estate Settlement Procedures Act was first passed in the 1970’s by Congress in order to protect the consumers of real estate from these unscrupulous practices that were perpetrated on the unknowing or inexperienced home buyer or seller.
The number of creative scams that can exist in a situation where someone of little experience comes across someone with a professional with a great deal of experience and a very limited amount of human decency. RESPA should not have to exist anymore than “Don’t punch yourself in the face” should have to be a law…which it’s not. The difference is that when we put hundreds of thousands of dollars on the table and someone in the transaction doesn’t share our sense of civic duty or compassion for fellow humans.
A buyer is told that they will be save $2000 dollars on commissions if they use the agents loan officer (cause we have a great relationship) then the lender charges the buyer an extra five thousand dollars in closing costs and throws the agent three thousand and pockets two additional thousand of their own. The buyer really doesn’t feel it because the $5000 is amortized over 30 years which means it costs $50-$75 a month while it generated thousands of dollars for the twosome that came set the trap.
Lenders were able to send transactions to Title companies without offering a second title company to use. The title companies would actively and in some cases openly solicit deals from loan officers with kick-backs and the highest kick back normally won the deal. This would sometimes cause the first title company to be out bid and lose the deal to a more lecherous and unprincipled title company.
The cost of the kick-backs flying back and forth between real estate agent and loan officer and then to loan officer from title company was disastrous to the prices of real estate. As the cycle continued it also escalated and this caused home values to increase more quickly which then brought the real estate appraisers into the circle of deceit in order to manufacture the needed valuations to pay for the artificial inflation.