HUD scrutinizes banker-broker affinity deals

The U.S. Department of Housing and Urban Development has questioned whether HomeBanc Mortgage Corp’s marketing alliances with real estate brokers and home builders comply with the Real Estate Settlement Procedures Act.

The Atlanta-based company last month received a letter from HUD asking for answers to some questions about the alliances, said Mark Scott, HomeBanc’s VP of marketing. He said the company is in the process of answering the questions and plans to submit its responses to HUD by the end of April.

Scott said HomeBanc’s the arrangements don’t violate RESPA, a federal law that bans kickbacks for mortgage-loan referrals and other settlement business. He said the arrangements have been fully reviewed since they began in 2001.

“Based on various lawyers we have looking at this and on our own understanding of the regulations, we expect these to be fully RESPA-compliant,” Scott said.

HUD spokesman Brian Sullivan said HUD received a complaint and is looking into it, but he couldn’t comment further.

HomeBanc’s situation is of interest because it calls attention to the growing number of affiliated business arrangements and alliances among real estate brokerage companies, mortgage lenders and settlement services providers, and the federal housing agency’s stepped up enforcement of RESPA in recent years.

HomeBanc, which closed $3.9 billion in home loan originations last year, pays a flat monthly fee to its alliance realty brokers and builders for signage, office space, Web links and the like, Scott said. The money goes towards a “store within a store” concept, he said, which means HomeBanc rents office space inside a brokerage or builder’s office and staffs it with a HomeBanc loan officer.

Scott wouldn’t disclose how much HomeBanc pays the allied companies, but he said it’s in-line with market values.

Listen to what Mark Scott of HomeBanc has to say about the company’s alliances.

The HUD inquiry came to light in HomeBanc’s preliminary registration statement for its planned initial public stock offering. HomeBanc was in the midst of preparing the Securities and Exchange Commission statement when it received the letter from HUD, Scott said.

HomeBanc had 132 alliances in 2003 with builders and brokers throughout Georgia, North Carolina and Florida. Fifty-seven such alliances were in place in 2002 and 28 existed in 2001.

Those marketing alliances accounted for 36 percent of HomeBanc’s revenue last year, Scott said.

“It hasn’t led to any extensive market dominance for us, but we do believe it’s the wave of the future,” he said.

The 1,200-employee company has a department devoted to the alliances. As HomeBanc finds brokers and builders that match its service area and philosophy, it approaches them about forming an alliance. Sometimes the broker or builder approaches HomeBanc.

“At the end of the day, a lot of this is coming from the Realtors because their customers are wanting a one-stop shop and the Realtors are saying, ‘Okay, how can I set that up?'” Scott said.

Some RE/MAX International, Coldwell Banker, Prudential Real Estate and Keller Williams offices have HomeBanc alliance agreements.

Bob Kilinski, co-owner of the southeast region of Keller Williams, said each realty office decides which mortgage company to partner with. Keller Williams is heavily represented on HomeBanc’s alliance list due to decisions of individual offices, not the regional office, he said.

Kilinski and others speculated that a HomeBanc competitor may have lodged the complaint with HUD to create doubt about the legality of the company’s alliances in advance of its IPO.

“Your competitors are not exactly happy about your success,” Kilinski said.

As for the inquiry itself and the connection to Keller Williams, Kilinski said, “It’s always a little unsettling when the U.S. government turns its spotlight on you, but it’s not unnerving.”

He said a Keller Williams attorney reviewed the alliances and found no RESPA violations.

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