Realtors have a Fiduciary Responsibilty..... What about loan officers???

Jeff.  I don't believe that "REALTORS" have a duty of fiduciary.  The key word is, IMO, client. 

Being a REALTOR doesn't convey the duty of fiduciary.  However, being the representative of a buyer or seller client surely does. 

Although, in states that have promulgated statutory agency laws, the agent may not have fiduciary in all matters.

This is very complicated.  Dual agency states like Maryland make the matter more complicated, which is why I dont practice dual agency. 

I understand that some states are requiring or planning to require that mortgage brokers have a duty of fiduciary to their borrower clients.  That will be very interesting to watch.

Interesting.

It is complicated. NH is a Dual Agency state as well and we have to disclose any conflict of interest and get permission as well in writing. I'm not sure any of that applies to mortgage officers but I'm not sure.

Jeff,

Thanks for the post. New Jersey as you know is in the same boat with Maryland. Likewise, I am not aware of anything that indicates an implied fiduciary responsibility on the part of mortgage professionals. This may well all be in the process of changing.

What about those realtors that direct their client to their in-house lender?

My personal opinion....and many others...is that in house lenders and title companies in house are a conflict of interest. There are a couple of real estate companies here that have ALL in house...a one stop shop so to speak. I do not agree and we have a fiduciary responsibility to our industry to just do things the right way. It is not only a responsiblity but also don't we have a moral obligation to do what is right?

Wooeee, that transaction definitely has a smell to it. I agree with your post and have said so in my posts. There is no way a Realtor can represent his client as a Realtor and a loan officer. It just doesn't make sense. IMO, the seller should have representation, the buyer should have representation, the title company and the loan company should be independent of all. But, the is just my opinion. Oregon is one of the states that allows one person to do it all as long as notification is done.

This transaction definitely smells bad!

The primary smell to me comes from a real estate agent being the loan officer for an FHA loan in the first place since HUD forbids it.

It is interesting that the buyer feels that the buyer's agent screwing up the loan warrants extra money being paid to them!

It is a tough call. But I frankly don't have  a problem with it. You stated the Buyer agent was also a loan officer. What about a loan officer who is a Realtor. One thing I firmly beleive is that Realtors are held to more scrutiny, higher standards and laws than any profession and I am very proud of that fact even lawyers are not held like we are. I have been all three and thought I dida great service for my clients at least I hope I did. There were times I had to step out of one over the other because of the things you talk about. But if you can be a Policeman by day and fireman at night or a grocery clerk by trade and a soldier by belief than who am I to say any different. I think the laws will take care of issues like you stated and our code of ethics will take care Realtors. Last but not least I have had no less that five count em five mortgage people get a Real Estate license to avoid paying a Realtors fee. What is up with that? Anyway good post very thought provoking.

LENN...... . I am a tad confused or maybe I am just to damn tired because I couldn't sleep until 5 am this morning.  But you said this... "Being a REALTOR doesn't convey the duty of fiduciary.  However, being the representative of a buyer or seller client surely does."

Isn't a realtor a representative? Representing the buyer or seller?  And in some cases, in some states, able to be a dual agent, as long as their client understands this and signs the form?

I truly do appreciate your opinions and such, because not only have you been doing this for a very long time, and not only very wise, but that we usually see eye to eye on most things. And I know you don't practice dual agency, hence why you hired some buyers agents, which I think all realtors should do. But I think it comes down to greed. In all honesty, how can say that you will give the same concern, care, and advice, if you have both the buyer and seller?  That one scares me.

But yes, I think all states should be on a federal level when it comes to loan officers and having both a fudiciary responsibility and some sort of code of ethics. And if they can't follow this and get some strikes against them, that their license is put on hold the first time, and the second time?  Revoked.  Just my .02 and thanks for your input and feedback.

MONIKA...... .  yes, as Lenn repeated, complicated. I would say very complicated and needs to be worked on now, not later.  And no, it does not apply to a loan officer, which is very scary. I knew several loan officers that hung their real estate licenses in other offices. I just thought it was a joke....

WILLIAM...... . yes, I am aware of this. I just think that they need to overhaul the whole loan officer and part of the real estate procedures and regs, in what we can do and do it on a national level. Just so many minor issues that have added to the mess that we are in. And I will elaborate on this in another comment.

SALLY....... . I totally agree 110%. Not that they are bad for all clients, but yes, there is a conflict of interest. Great example... I have received and closed all 3 deals that one realtor has given me. She trusts me and she has told me that my service and follow up has been better than her inside person. But I haven't received any new clients from her in the last 3 months. She received pressure from her boss and the manager to keep some deals in-house.  SAD...  pressure?  Isn't that a RESPA violation?  Not really, unless I opened up a can of worms.  And yes, I think it is a fiduciary responsibility and a moral responsibility. thanks for your input..

One Stop Shops sell their mortgage-side of the company on the premise that consumers want "convenience", but the real truth is "company control".  The company has a hold of BUYER by one arm, and in-house mortgage company has the BUYER by the leg.  The consumer has no chance of getting away...

...Not to mention, the "intangible rewards" for spending more money on having the convenience of being controlled. 

If asked I give three names of great mortgage people, who are thoughtful and thorough.  After that, it is up for the buyer to decide.

Jeff This is an incredible well written post, i can see why Jason Sardi respects your...YOU! I appreciate your insight and frankly wish that there were more lenders like you and Jason! I am curious, you are an FHA expert but also do all the other types of loans. Why do you concentrate on that part of your business when you are obviously very adept at many of the other types of loan packages etc.? I rarely have the opportunity to write FHA contracts and cannot remember that last time I was called upon to do so. I say this not in arrogance or naivete, it's just an aspect of my particular market. I am please to make your aquaintence and will sign up for your blog later this evening! Thanks -RL

Hi Jeff,

The Feds should crack down on this.  We have this in Great Falls, Montana and let me tell you it is interesting.  The one stop shop is not good for consumers, in my opinion.  The other thing is one of our title companies is now opening a second office with one of our largest brokerage firms, which also has one of our local bank branches in house too.  No one will say it, but a different lender whom was approached to go "in house' refused because he said it was illegal for the kickbacks this broker wanted "off the books".  I just shake my head.  Do they really think we don't know what is going on?  No one will do anything to rock the boat, as there is no "proof".  Do I want to use the title company who has chosen an alliance with this brokerage?  Probably not because they are showing favoritism.  It is a shame and I think starting to become a bit of a monopoly, which is clearly and anti-trust violation.  How long will it take the Feds to figure this out?  Honestly probably never, they are untouchable.

Great Post,

Thanks

Kelly

Jeff, Looks like a snake, hisses like a snake, must be a snake. What a slime bag...sorry, can't think of a nicer thing to say, so I"m saying what's on my mind tonight.  If that is not a HUGE red flag, then I've never seen one.  AND we wonder why Realtors rate one step higher than used car salesman?  That agent needs to find a new career.  Morals can't be taught in a classroom. 

IMO, a lender SHOULD keep the borrowers best interest in mind, at all times, as the Buyers agent is obligated to do.  Maybe we would not all be suffering as much, had this taken place sooner. (I'm not blaming the lenders solely). 

I had a deal a few months ago with a Buyers agent, whose wife was the lender. Can you say conflict of interest and RIP OFF to his buyer? He did not disclose to me, nor his buyer, until near closing date. I found out on accident.  Long story short, they "stuck it" to the buyer.  I was furious. I reported him as far upI could. Haven't heard a word.

I would be happy to send a client to our in house mortgage lender IF they had the best rates and CC....IF.  I always get 3 good faith estimates for my buyers and let them choose their lender.  So many buyers have no idea .  (title, insurance, prepaids, etc.) I make sure to go line by line, to compare apples to apples.  It is our job to protect our clients, period.  In saying that, WHEN are you getting your Alabama license? :)

Realtors should NOT act as a lender.  Ever, never, in my opinion!

One of my favorite lines...."Stupid is as stupid does."  These people are just ridiculuous.  I'm always a proponent of "relational" over "transactional."  Those who live for the transaction often die b/c of the transaction.  Relational people are relational...because they VALUE PEOPLE.  If you value people, you always think of what's best for them.  People who run their businesses this way...well....let's just say...that the sun will always rise for them.  People who are "transactional" AT BEST get a transaction closed,

HOPE FOR ANOTHER TRANSACTION;

GO TO BED AT NIGHT WONDERING WHETHER OR NOT THEY'LL HAVE TO DEAL WITH ANY FALL OUT OR COLLATERAL IN THE MORNING....Not the way I want to live!

We're supposed to provide 3 choices to our clients, and allow them to choose. Our brokerage does not have in-house financing, but we used to have (according to management) Countrywide as our preferred lender. In light of everything that's happened in the last couple of years, our new "preferred lender" is Bank of America. I've personally, never referred business to BofA, but I had a friend who used to be a loan officer with Countrywide. I did have her name on my list for a while. She did OK. But I preferred my independent mortgage brokerages.

I get tons of calls from my online profiles..... from agents that are looking for a sucker loan officer to help scam their clients....

Sad

Jeff, I think that Lynn may have meant that being a REALTOR® in and of itself does not create fiduciary...but the act of taking on the client as a buyer or seller does.  In the State OF Texas, any agent that does not represent a buyer, by default represents the seller and so the fiduciary relationship is dictated.

HOWEVER, I noticed, as I read over your post, you do not answer the one question you asked in your title.  Who does the loan officer have legal fiduciary responsibility for? I mean, not does your loan officer watch out for someone but rather, legally binding in court Fiduciary Responsiblity.  Who does the loan officer have this responsibility to or is it to no one at all?

Jeff, you have so much food for thought in this post that I'll be able to skip breakfast.  While DC and Virginia have gotten rid of the fiduciary relationship between cleint and agent, although that certainly does not affect the agent's obligation to look out for the client's interests.  Even when I worked for companies that had in-house lenders, I made them compete with the other guys for my clients' business.  I think the whole idea of a lender/real estate agent in one suit is totally crazy.  And the example you gave from Florida is just plain nuts.

Another great post Jeff! 

The convenience of an in-house loan officer makes sense to me.  The LO can estimate payments, interest rates and loan programs and our buyer won't need to leave the building.  The buyer should be told that they may chose whom ever they wish, of course.

Now, if the realtor is going to do the real estate side and an FHA loan in Florida, an example need to be made.  It's the same thing with 1099 co-brokering of FHA loans, without enforcement, it will continue until it seems like the normal thing to do.

HUD needs to flex its muscles and lay down the law. 

Its amusing to me to hear about states getting rid of the fiduciary relationship between client and agent. Just goes to show how much better lobbyists real estate agents have then mortgage brokers. ;)

After all, the common law development of the concept of agency (in general not just in real estate) has always included a fiduciary duty. I have always felt that in the case of buyer agency the fiduciary duty went against human nature for someone to make higher commissions by getting the buyer to pay more. Most times when duties don't acknowledge human nature, they don't work out. It makes more sense on the seller's side where the more money you get the seller, the more you make.

In most states outside California, loan officers don't have any fiduciary duty. They also don't have exclusive contracts like listing agreements. A deal can be pulled away from a loan officer at the closing table even if they have done everything correctly and delivered as promised. Heck, on a refinance it can be pulled away from them even after the closing during the recission period. When this happens to a fiduciary agent, they at least have some legal rights to go after their commission, even if they choose for business reasons not to. Loan officers end up crawling away to lick their wounds, or giving up all their profit to keep the deal.

On the other hand, the numbers aren't always the only criteria for acting in the best interest of the client. For instance, a seller who is about to turn down the only offer they have received in months probably should be pressured a little to take that "lower offer" instead of losing money by holding out.

On a side note, protecting the client's interests isn't always about getting the lowest numbers promised up front. As has been discussed on Active Rain many times, some brokers will give misrepresentative Good Faith Estimates, or even just make mistakes in their choice of loan program, and then have completely different numbers show up at the closing when it is very inconvenient for the parties not to just go ahead and close. Getting the lowest priced upfront quote isn't always the only element involved in protecting a client's best interest. A low price quote isn't any good with no closing.

If I were an agent with a deal to close and a client who had a borderline loan scenario, and Jeff gave my client a quote that was more expensive and at a higher rate than another broker, I would likely advise my client to take his higher offer. Because he has the experience and knowledge to overcome the inevitable problems that pop up out of left field that no one could have predicted. Let's face it, borrowers sometimes lie about things they think are unimportant, but underwriters think are important.

Holy conflict of interest batman!  This stuff should of been cracked down upon long ago, should never even existed in my opinion.  I know that one of the larger Mortgage Bankers in a certain area of Pennsylvania paid for Realtor's cell phones, car payments, and the like.  Hmmmm, somebody rationalize that to me.  I've always liked Bill's rules and Rule #1 is the customer comes first.  End of story.

Jeff,  I agree about the possible conflicts with in-house lenders, title agents etc.  However, in Florida unless the clients is advised and sighns a single agent notification form where the agent will then be a fiduciary to the client, the assumed agency relationship is that of a transaction broker and no fiduciary responsibility exists - at least legally.

Jeff,

You raise some interesting questions, generating some interesting responses. 

There is no one size fits all type of answer and as indicated by many of the comments depends upon state law. 

I am a pre-license instructor in Illinois and my response is based on Illinois Real Estate License Law.

Before I get into Illinois specifics, I truly believe that an universal rule of thumb would be the "golden rule", "Do to others what you would have others do to you."  While that might sound simplistic, it makes sense that an educated loan or real estate professional would know how they would want to be treated in a given situation.  If you wouldn't  want to be treated in a particular way, based on your knowledge and experience, why would you treat another that way?  

Illinois is a designated agency State with certain required disclosures.  One of those disclosures is the disclosure of all sources of compensation, the client receives the disclosure and can make the decision as to whether or not the use of an in house lender is in his best interest.

The question can be raised as to just what is in the client's best interest, lowest rate and fees, or a loan that will close.  Perhaps an in house lender has demonstrated a proven track record of closing loans that is better than an outside lender.  Only the client can make the decision as to what is in his best interests and should be given suffcient information to make that decision.

Here is what I present in class.  The key to long term success in the real estate business is having satisfied clients who will refer the license and do repeat business.  If the licensee does both and a client is not happy with the loan process or finds out later that a better rate was available, etc, he might accuse the licensee of self interest.  Is this a risk the licensee wants to take on?

That's up to the licensee and our reccomendation is that the licrensee uses a formal written disclosure that explains that the client does not have to use the in house service and should feel free to shop for his own loan.

As of July 1, 2008 a new Illinois law does create an agency relationship for loan officers with certain obligations to the borrower.  The law gives the borrower the right of private action under the law.   

Hi, good blog, but Realtor is not interchangeable with agent, or real estate agent, FYI.

So that agent, most likely not a Realtor, blew that one if he was, but this should be a standard of care that every agent adheres to.

Also as far as fiduciary, "under Ca. law, all special relationships that involve a high degree of trust, fidelity, integrity, and confidnece, and the experties of special knowledge and discretion or power" constitutes a fiduciary relationship. (http://www.dre.ca.gov/pdf_docs/rebsum07.pdf)  It means trustee/bene,lawyer/client, board of directors/corporation, real estate agent/principals-clients, including mortgage loan brokers that are licensed by the dept of real estate and the borrowers.

Do other states not have this law?  If not, they're making a huge mistake for their citizens.  Also, for consumers, make sure you choose a Realtor, and not just an agent.

FRED...... . yes, that transaction does smell.  And in regards to Oregon, allowing 1 person to handle all transactions involved....  What are they on, crack?  We both agree that this should not be the case, that you should be allowed to deal on all levels of the real estate transaction and secure the fact that the client will always get the best deal and the best interest in hand. It just doesn't make sense and opens up a can of worms for wrong doing.

CARL..... . I told the real estate agent to look into the signing of the mortgage application by this realtor/loan officer. And when filing her complaints, to make sure that this is in the complaint. Yes, it smells very fishy.

And yes, very interesting that the buyer feels that her agent deserves the extra money. Which makes you think more so that fraud is definitely involved. You would think that if she really wanted the house, that she would be open to some other advice or scenarios...  very scary.

CHARLES...... .  okay?  a realtor that is also a loan officer or a loan officer that is also a realtor?  Isn't that like potatoe or patato?  Seriously, you talked about a policeman by day and a fireman by night. Do you see policeman putting out fires or a firefighter going to a burglary call?  Let's be real here... that is your opinion and maybe you did act on your clients best interest. Overall, you would be a small number.

I will say this... I do have a problem with a realtor that is also a loan officer, handling both sides of the transaction. I also have a problem with an agent who is both the sellers agent and the buyers agent on the same transaction. Answer this.,.... where does your professionalism side with first?  The seller or the buyer?  How can you honestly negotiate for the buyer when you have the seller. You win either way. Are you more afraid in losing the deal if you have the buyer underbid? Do you over price the house and not have the buyer negotiate?  Seriously, just to many holes in this scenario.  And most people would and have taken advantage of it. 

In regards to being a clerk but also a soldier?  How can you compare all of this. You can be an accountant and a soldier. But when called to duty to defend your country, you aren't going to run across a battlefield with your calculator.  Just my .02.  Thank you for your input, but I disagree with most of it... look at my example. That has happened a lot in the last 2 years.

RUTHMAN real estate...... .  yes, the company that offers one-stop shopping wants control. Which is also the same as keeping the profit in-house. It would be different if the in-house lender would give a better rate or discount.  Or the real estate company, having both transactions, would give a break to the seller or give money to the buyer. You don't see any of this... yes, yes, the buyer will sign a form, but the realtor will usually make it sound like it's in the consumers best interest. And many realtors don't get anything for this. But if they go outside this box, they will get pulled into the managers office. Why?  because their broker or boss wants it in-house... more money to them. And they will pass bonuses onto the manager, hence why the manager will bear down on their agents, going after them if they don't keep things in-house. This needs to be exploited more often. You wonder who has whose back and whose interest at hand.

RUSSELL...... . first things first.... thank you very much for those polite compliments.  And just a FYI.... we applied for out Texas license and should be licensed in TX in about 45 days.

In regards to your questions... I don't know much about the Austin market. Meaning what the average prices are... or what areas that you go after....  but read this post and all of the comments in this post. http://activerain.com/blogsview/701392/FHA-loans-vs-Conventional    I list a few reasons to why you might not have seen so many FHA loans. Some lenders just weren't approved FHA to begin with. And another reason, I am not sure what your average home price, but before 2008, the loan limits where lower for FHA. They are now $271,000 in Austin...   but again, read the comments in my post. There is a loan officer from Texas, who tried to tell me that my rate was to high in my comparison. but this person forgot one major ingredient when comparing.... and that was the penalties imposed by Fannie Mae, when it came to LTV and credit scores, which means his rate would have been higher. And if you read the other comments by other loan officers, they all make a point that I was correct in this scenario. Hence another issue that we have on hand.  Which is another reason why you might not have seen as many FHA loans.  Many loan officers just don't know the difference and think conventional is better. But in many cases, conventional loans can be easier for the loan officer... hence another reason why they don't do them as much, unless they have to. All of this is very sad and just one reason out of many, why we are in the mess that we are. The consumer not getting the best program... I didn't say best rate, but the best program out there on the street. In many cases, the consumer would get the best program that the lender has available, but not what can be offered when it comes to mortgages. I hope this helps some.  Just my .02, but it can be backed up by facts, not opinions..  and again, thanks for those kind words.

wow this has created a lot of conversation - nice job - to me this seems like a mess on most sides of the transaction -

Jeff,

If the Realtor is doing their job and encouraging their buyer to "shop for their mortgage" - not just taking their buyer to whom they wish to close the transaction with...AND the mortgage company is required by RESPA to disclose any dual relationship that exists...what is the harm?  Our company is all about disclosure and protecting both the consumer and the investor (bank).  You CAN do both if you educate your borrower/buyer.  The problem with some mortgage professionals is they don't educate their borrower and give them the loan that they think is best for the borrower without asking proper questions and finding out what the borrower's needs truly are! - JoAnn Srein

I see no issue with a Realtor also acting in the role of the Loan Officer as long as the agent/LO fully discloses the relationships... Also, for the buyer, there are great advantages to this scenario, namely that there is a single point of contact for the transaction. A very good thing that make the buyer much more comfortable. Also, I see no reason why a Realtor can not be up to speed to with loan products. We have several real estate agents in our firm that are also fully qualified "licensed" loan officers (RI now requires licensing for LOs) and these agents are the most successful in bringing buyers to the closing table. Why, because they handle all aspects of the transaction for their buyers, and know what is needed.

Also, I see no conflict of interest that cannot be worked around much easier than dual agency issues. In the instance of a buyer agent working also as a loan officer, there is fiduciary responsibility to the buyer, which would mean getting the best loan for them, just as much as it means representing their interest in the negotiations on price, etc. Disclosure can avert legal issues, and this is unlike the comparison to dual agency since the agent is not claiming to represent both opposing parties to the transaction, but rather two parties on the same side of the transaction... very different.

Hope that is clear enough on my thoughts...

Good post Jeff...

These are interesting and valid questions.  Unfortunately, with the market in turmoil right now, you have the people who will do anything to make a sale.  Not only do we need to keep up with current market trends in our area, educate ourselves to keep up with changes, we also have to make sure we are not getting our customers or ourselves into any legal issues.  I've turned down a few deals where I could have made mucho dinero just because I smelled a rat.  In most instances, I was right!

Great blog, Jeff!

We all have a responsibility to do what is right.  It is time for accountability and EVERYONE should be held accountable.  FBI continues to investigate and prosecute with over "1,400 individual real estate lenders, brokers and appraisers were now under investigation in addition to two dozen corporations."

some higher form of written required fiduciary responsibility would instill a great amount of consumer confidence in the borrowing public

Jeff,

Don't know how I missed this post...but those that don't get it, don't get it!!! Thanks,   Fran

I've spoken to a number of Mortgage brokers and Loand officers.  They do have a fiduciary duty to their client, unfortunately the borrower isn't their client, their client is the lender.  Because of this convoluted relationship the lenders feel no guilt at all for the problems that the buyers will go through or for the financial mess that they have created.

Gary