Wells Fargo to Exit Marketing Agreements
Wells Fargo is ending some marketing arrangements with real estate firms and home builders over concerns about regulatory scrutiny.
The decision, effective Aug. 1, ends the practice of providing payments or services to agents and builders that refer home buyers to the San Francisco-based bank. While it's illegal to pay for referrals, regulations allow lenders to compensate for things such as co-branded advertising or the use of office space as long as the payment matches the value.
The Real Estate Settlement Procedures Act prohibits kickbacks in residential property transactions because they can be used to steer consumers to higher cost or lower quality service providers. Since 2011, the law has been enforced by the Consumer Financial Protection Bureau.
"The decision was made as a result of increasing uncertainty surrounding regulatory oversight of these types of arrangements," Wells Fargo said Thursday in a statement. The action isn't expected to have a material effect on mortgage production, the bank said.
As mortgage refinancings slumped, lenders have looked to such relationships to drive originations for new home purchases. The Mortgage Bankers Association this month estimated refinancings would account for just 41 percent of new-loan volumes this year and 30 percent next year, down from 63 percent in 2013.
Prospect Mortgage, a Sherman Oaks, Calif.-based lender, also said Thursday that it would end such marketing arrangements.
In 2013, Wells Fargo said it would withdraw from joint ventures with potential referral sources. The bank once operated more than 100 joint ventures with real estate firms and builders that were run as separate legal entities with their own sales forces and the freedom to sell loans to Wells Fargo or other lenders.