LenderNews by Rob Chrisman
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Aug. 11: Readers weigh in on Zillow’s acquisition, Realtors being LOs and vice versa

August 11, 2018

We know that, as an industry, we’re constantly dealing with old issues and new. In today’s commentary let’s see what some readers thought about Zillow’s move into mortgages, and re-visit regulations governing loan officers having the ability, or lack thereof, to wear multiple hats in the FHA loan process.
 
Folks weigh in on Zillow’s purchase of Mortgage Lenders of America
 
Several readers wrote in to discuss the announced acquisition, and I’ve posted a few of those letters below. Some were lengthy, others less so. (“Why doesn’t MLS cut off Zillow now?”) Readers should know that this week’s commentaries contained quotes about Zillow’s acquisition of MLOA, and those were not my own comments, but rather those of a Zillow spokesperson.
 
Here is an interesting take from Garth Graham, Senior Partner at STRATMOR Group who 20 years ago founded mortgage.com, so he sure has some background in online disruption. “Rob – Here are some comments that I would make regarding Zillow. Over 75% of all search is done on Zillow properties. It makes tools that borrowers want to use, and the adoption of the tools keeps going up. Zillow is a large driver of consumer interactions, and it will continue to be a force in driving online consumer behavior. The company is here to stay.
 
“Now Zillow is going to own a lender (or at least will after the transaction closes in a few months). A key thing to keep in mind is that its model has always been (and Zillow states will continue to be…) to provide leads on an exclusive basis. That is different from other competitors who sell leads to multiple lenders, so if you purchase those leads you are always competing with others on the platform. At least with Zillow, if you receive the lead then the lead is exclusive to you (at least exclusive other than the borrower’s inclination to keep shopping). So, from a lender perspective, would you rather receive a set of exclusive leads from an entity that also owns a mortgage company OR buy leads from other entities who are providing the leads to multiple lenders but none of the lenders who receive the leads are owned by the lead provider itself? I am not sure that choosing the non-exclusive path is really a benefit for lenders who have a proven track record of being able to close Zillow leads. 
 
“Also, I think the number of leads that the lender in KC could handle is very small compared to the vast universe of opportunities that are generated by Zillow. The other option for lenders is to find their own leads – organically – but that is a tough business to compete with Zillow who dominates Real Estate search, so you might have your own leads but at a cost that is higher than the Zillow cost per funded loan. I think lenders need a strategy to continue to grow their business, and I think Zillow is a key component of that for the foreseeable future.”
 
Rich Swerbinsky titled a piece titled, “The Zillow Bomb.” “I see this as being the first of a series of acquisitions in the mortgage lending space for Zillow, and a further catalyst for the industry towards increased online originations and reduced margins for mortgage originators.”
 
An originator wrote saying, “Rob, as I read this information about Zillow it makes me ask, ‘What would I do in their position?’ In a recent conversation with a Zillow employee, I was emphatically told that their focus was on customers who visit their website. I asked, ‘Since I’m a paying customer, shouldn’t your focus be on me?’ As a public company, their loyalty must be to their shareholders. Along that line of thought, paying customers must at least initially be a significant priority. Their recent move to become a player in the mortgage business, however, causes me to look longer term into that avenue of potential income and profit stream – from a shareholder and profit perspective.
 
“Zillow is a clever company. It uses Realtor’s data that they get for cheap to create a market to take business from other Realtors. Now it has mortgage companies paying them money (for leads) to build their mortgage business. Brilliant! And then I ask myself, if I could generate 23 million loan requests, could I make more money selling these leads for a few dollars, or would I want to make the amount of money I’m promising the brokers they can make from the leads they purchase from me?
 
“If I truly believe the Zillow lead proposition and ROI that can be generated, why wouldn’t Zillow buy a mortgage company (or companies) that have nationwide coverage and use all of those leads themselves? If NAMB and other organizations stood up to them and required long term non-compete agreements, what do you think Zillow would say? I think we all know the answer to that question. My bet is that three to five years from now we are going to be looking at a VERY different mortgage dynamic.”
 
And Aaron sent, “Your piece on Zillow barely touches on the ‘feelings’ of the real estate and mortgage community. Upon release of the news yesterday, I had several LOs contact me about their cancellation of Zillow lead programs and similar calls feeling out my thoughts by agents I work with. Zillow is increasingly moving into the exact same competitive space as the people who pay their bills. It started with buying homes in select markets as flips, and now it is financing those. All paid for by the people they are taking market share from. 
 
“Something tells me this is not going to work out well, and to look no further than the current events surrounding Facebook as proof. When the decision is made to earn profits while working against those who created your business in the first place, you will struggle to keep that revenue stream coming in. And, ultimately, that is what has made Zillow profitable — not trying to enter the space they are ultimately supporting. Everyone has heard the adage that the people in the Gold Rush who made the most money were the ones who sold the picks and shovels. Well, Zillow has decided to give up on picks and shovels and enter the mining game. And history suggests that this might not be the right move.”
 
BB typed, “There’s a new Trojan horse in town and it’s called ZILLOW. ANYONE that doesn’t think Zillow is trying to squeeze the agent and loan officer out of the buying & refinancing transaction needs to take a business class at their local community college. The Zillow responses you included in your email below are 100% BS. Zillow CEO has made it perfectly clear of his intentions. Anyone with half a brain saw this train coming down the track YEARS ago.
“If agents and loan officers want to keep funding Zillow’s take-over of the purchase and real estate market along with the MLS’s giving Zillow 100% access to all the data needed (listings) then the MLS, agents and loan officers get what they deserve. NOTE to the MLS, agents and loan officers – STOP funding and financing Zillow’s take over YOUR industry!!! Can you name one other example of an industry that gave its competition 100% access to its product (data) AND then funded the competitor’s growth and eventual takeover of the industry? This is an epic fail.”

 
Licensing
 
This topic, along with LO comp, continues to be puzzling for some. “Rob, I am hearing about people acting as a ‘hybrid’ agent. We do things by the book and have always been under the impression that you could not actively do both (and especially in the same transaction). Has there been any change in the HUD/FHA rules regarding Realtors acting as Loan Originators or vice versa?  
 
“This was from a 2013 column you wrote: ‘Sometimes I am asked, "Can I work for a lender as a loan officer and as a realtor for another company at the same time?" or, "Can a loan officer of a sponsored third-party originator also be a real estate agent?" Fortunately, there are some talented folks, and government agencies, that know the answers to these. Barbara Werth (Mortgage Training Today) wrote to HUD and writes, "I went to the reference listed in the second section, 4060.1 Chapter 2, page 6. I don’t think you can do both (as a sponsored TPO – not an Eagle lender – or ‘broker’, carrying a real estate license and mortgage originator license even if a state supposedly allows it)."
 
In HUD’s "FAQ, #7 Can I work for a lender as a loan officer and as a realtor for another company at the same time? No, FHA does not permit "dual employment" on a full or part time basis in any mortgage lending, real estate, or related field. The restriction applies to all employees who are employed by an FHA approved lender that work on FHA loans. This also applies to a lender’s "wholesale account representatives" that originate loans through sponsored third-party originators (brokers). This includes working as a real estate agent or broker for another company. A loan officer may hold a vocational or professional license in real estate but may not engage in realtor activities or make use of the license while employed by an FHA approved lender."
 
One can also visit 4000.1 I.A.3.c.ii. in the Bible, uh, I mean FHA Housing Handbook.
 
HUD also notes, "The following information is regarding if a mortgage broker can work as a real estate agent. FAQ: Can a loan officer of a sponsored third-party originator also be a real estate agent? Yes, if the sponsored third-party originator is not an FHA approved lender or an employee of an FHA approved lender. However, the loan originators of non-FHA approved entities must comply with applicable federal, state, and local requirements governing their FHA loan activities. If the sponsored third-party originator is an FHA approved lender, it is subject to the staffing and employment requirements in Handbook 4060.1, Chapter 2. FHA does not prohibit loan originators of FHA approved lenders from maintaining a real estate broker or sales agent license, as long as the FHA approved lender has controls in place to ensure the individual does not make use of their license."
 
Attorney Brian Levy with Katten & Temple, LLP contributed, “HUD has relaxed the conflicts of interest rules a bit since 2013 (see below for excerpt from Section I A. 6. f. of 2016 Guide), but the conflict remains on FHA loans. In addition to FHA conflict concerns, however, there are other issues with dual employment conflicts. “f. Conflicts of Interest: The Mortgagee may not permit an employee to have multiple roles in a single FHA-insured transaction. Employees are prohibited from having multiple sources of compensation, either directly or indirectly, from a single FHA-insured transaction.”
 
Let’s repeat that. “The Mortgagee must require its employees to be its employees exclusively, unless the Mortgagee has determined that the employee’s other outside employment, including any self-employment, does not create a prohibited conflict of interest…Employees are prohibited from having multiple roles in a single FHA-insured transaction. Employees are prohibited from having multiple sources of compensation, either directly or indirectly, from a single FHA-insured transaction.”
 
 
Thanks to Spencer D. for this one:
Manure: An interesting fact.
In the 16th and 17th centuries, everything for export had to be transported by ship. It was also before the invention of commercial fertilizers, so large shipments of manure were quite common.
It was shipped dry, because in dry form it weighed a lot less than when wet, but once water (at sea) hit it, not only did it become heavier, but the process of fermentation began again, of which a by-product is methane gas. As the stuff was stored below decks in bundles you can see what could (and did) happen.  Methane began to build up below decks and the first time someone came below at night with a lantern, BOOOOM!
Several ships were destroyed in this manner before it was determined just what was happening
After that, the bundles of manure were always stamped with the instruction, “Stow high in transit” on them, which meant for the sailors to stow it high enough off the lower decks so that any water that came into the hold would not touch this "volatile" cargo and start the production of methane.
Thus evolved the term…the acronym for “Stow High In Transit.” (You can figure it out.) It was stamped on all the bundles. So it’s really not a swear word which has come down through the centuries and is in use to this very day.
I did not know the true history of this word. I always thought it was a golfing term.
 
 
Visit www.robchrisman.com for more information on our industry partners, access archived commentaries, or to subscribe to the Daily Mortgage News and Commentary. If you’re interested, visit my periodic blog at the STRATMOR Group web site. The current blog is, “With Regulations, Be Careful What You Wish For.” If you have both the time and inclination, make a comment on what I have written, or on other comments so that folks can learn what’s going on out there from the other readers.
 
Rob
 
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