You are working with your real estate agent or home builder and they tell you that you should apply with Example Mortgage. Your first thought might be that you'll get a better deal since you were referred by someone that you already trust. But in most cases, you would be wrong. Why would they refer you to someone that would cost you hundreds or thousands of extra dollars? Most real estate brokers and home builders are now affiliated with the mortgage and title companies that they are referring. An Affiliation mean having an ownership which is usually 49.9% (max allowed by law).

Here is how it works: real estate broker company owns 49.9% of a mortgage company. The real estate broker company convinces their real estate agents of how great the mortgage company is. The real estate agent tells you to apply with example mortgage. You close your mortgage loan and the referring real estate broker company gets 49.9% profit.

Did you know that real estate agents steer 70% of mortgage loans for home purchases? This represents millions if not billions in over inflated fees that home buyers are paying. Most of these transactions involve an affiliation or interest. If everyone shopped around for all their real estate needs separately, this percentage would drop considerably. There are really great mortgage and title companies that are losing home purchase business to these affiliations. Title companies are affected the most because real estate brokers, mortgage companies, and builders are likely to have affiliations now. The title companies that are not affiliated are really taking a beating.

The main reasons these affiliations were formed is because federal law (Real Estate Settlement Procedures Act) prohibits payment of any kind for a referral within the mortgage industry. These payments are known also as kickbacks. So, a loophole was found. If company A (real estate broker) had an ownership in Company B (mortgage lender), then Company A (real estate broker) could be paid a portion of the profit. This is really just a legalized kickback. They went through a lot of trouble to make their kickbacks legal because it's worth it. Most of these affiliations (the company being referred) is usually charging you more. Why? First, the mortgage company that was referred in the above example has to pay 49.9% profit to the real estate broker company. They can't work on a very thin margin with those kind of kickbacks being paid. Second, you were referred by someone you trust. The fact is most people that are referred by someone they trust don't shop around. Why would they have low rates or fees if you have already been sold by the professional that referred you to them? If you are working with a mortgage lender or title company that was referred by your real estate agent or home builder, you need to compare mortgage quotes and title company quotes before proceeding any further.

Who Owns What?

Real estate brokers have an ownership in title companies and mortgage companies
Mortgage companies have an ownership in title companies
Home builders have and ownership in mortgage companies and title companies
Investment and financial companies have and ownership in mortgage companies

Every real estate, home builder, mortgage or investment company does not have an affiliation but many do. The larger the company, the more likely that this will be the case.