In a little-known civil action, the Consumer Financial Protection Bureau is investigating the real estate affiliate of Quicken Loans for illegal kickbacks.
Specifically, the consumer watchdog agency is wondering whether Rocket Homes Real Estate violated the Real Estate Settlement Procedures Act when it charged fees for referring Quicken’s mortgage clients to real estate agents. Under RESPA, it is illegal to collect money without providing “meaningful” services.
The CFPB’s investigation has gone largely unnoticed because it does not publicize such cases until a determination of guilt is made. And rightly so -- to announce an investigation without any such findings would cast an unnecessary cloud over innocent companies.
Quicken, one of the nation’s largest mortgage lenders, did not respond to a request for comment. But the company, which went public in early August under the name Rocket Companies, said in its IPO prospectus that it “intend(s) to cooperate fully with the CFPB in this investigation and (is) confident in the compliance processes that Rocket Homes has in place.”
The case was brought to my attention by Dmitry Shkipin of HomeOpenly.com, who has filed a complaint against Rocket Homes Real Estate with the Federal Trade Commission alleging not only violations of consumer protection laws and market allocation practices, but also antitrust laws.
Shkipin told me during a lengthy telephone interview that he believes his allegations are the basis for the CFPB probe. He has filed similar charges against Better Mortgage, Mellow Mortgage and LoanDepot, but because those companies are not publically owned entities, it is unknown whether they are also being investigated.
Shkipin contends that all of these lenders operate sham “paper brokerages” set up with only one thing in mind: to extract fees from realty agents -- fees consumers ultimately pay, often in exchange for poor service.
Shkipin came to me after my coverage of the damning Consumer Federation of America report in October that said that online referral agencies, which collect fees for referring buyers and sellers to local realty agents, are all but useless. In these pay-to-play schemes, CFA said, referral agencies often refer people to mostly inexperienced or hardly active agents who are unable to generate their own leads.
In most cases, CFA said that agents won’t negotiate their commissions because they have already given away a chunk to agents referring clients to them. And sometimes, people will receive less-than-full service because an agent won’t pocket a full commission.
But Shkipin contends some mortgage companies go further by skirting RESPA. They do so, he argues, because they fail to add anything of value to the transaction other than handing off a lead to realty agents. I have copies of all of his complaints, but since the Rocket Homes investigation is the only one that is public, let’s stick to his allegations about that company.
His complaint says that while Rocket promises to match Quicken’s borrower clients with highly rated realty agents, it actually connects them with “only real estate agents (who) have agreed to pay a referral fee.” The fee is never disclosed to the client, according to Shkipin.
“In reality,” alleges Shkipin, “Rocket Homes is a broker-to-broker collusion scheme that utilizes its parent mortgage company’s consumer information and passes it along to a colluding broker, who is willing to pay for it with a cut of their commission. All partner agents agree to pay Rocket Homes a prearranged referral fee on all closed transactions through their employing broker.”
Under Section 8 of RESPA, referral payments are allowed only when all parties are acting in a brokerage capacity. But Shkipin maintains that Rocket does not meet that test. Instead of representing consumers to help buy and sell houses, the company “actively disengages” from those activities so that partner agents know Rocket will not compete with them for clients, he contends.
The company, which is rated No. 1 in consumer satisfaction by J.D. Power, uses its real estate license “to collect blanket referral fees from the largest number” of real estate agents possible, he alleges. It “has absolutely no duty of care to consumers and takes no responsibility for the transaction, despite receiving a direct financial benefit.”
Moreover, he maintains that in collecting blanket fees, Rocket violates the Sherman Antitrust Act, which requires agents and their brokers to compete for consumers without entering into agreements that restrain free trade. “It is a per-se violation when the parties agree to a ‘standard’ referral fee that will be paid for producing a client,” he says in his complaint.
Ironically, Shkipin’s company, HomeOpenly, is also a service that helps buyers and sellers find agents. But he says his operation is different in several respects. For one thing, it is an open marketplace, not a real estate brokerage, where all service providers listed on the network compete for consumers’ business individually. For another, it earns its keep from advertising, not referral fees.
He argues that companies like his operate at a competitive disadvantage so long as brokers can trade consumers as leads for blanket referral fees. As long as referral schemes are allowed to operate, he explains, agents are naturally encouraged to participate. There are no upfront costs, they pay only when a sale closes and sometimes hike their commissions to cover the referral fee they must pay.
“Any agent who chooses not to participate in such schemes risks losing ‘free’ business,” Shkipin says. “Such an environment is highly poisonous to a healthy real estate representation market.”