By Meyer, Mark L.
Mortgage Banking , Vol. 67, No. 2
"Friendly, available mortgage company seeks mutually satisfying relationship with willing and attractive partner."
While there is good reason for mortgage companies to pursue long-term referral source relationships through affiliated business arrangements (ABAs), carefully sizing up prospective partners (e.g., home builders, real estate brokers, community banks, certified public accountant [CPA] firms, financial planners, etc.) and evaluating their "marriage" potential can help avoid unproductive partnerships and disappointing breakups.
For those not yet initiated, the Department of Housing and Urban Development (HUD) allows ABAs a safe harbor from Section 8 of the Real Estate Settlement Procedures Act (RESPA), which prohibits the payment of fees or a thing of value in exchange for referrals. Technically speaking, an ABA is a situation in which a person or firm is in a position to refer purchasers of settlement services to a settlement-service provider that is owned, in whole or in part, by the referring party. Although the referring party (referral source) receives no direct payment for the referral, it benefits through the ownership interest in the settlement-service provider (ABA). ABAs may be attractive investments for mortgage companies, as these ABAs, jointly owned with a referral source, can broker or sell loans they originate to the mortgage company partner.
Personality, characteristics and chemistry
The following questions are important to consider in determining a referral source's fit and compatibility as an ABA partner.
* Does the referral source create mortgage leads from its routine business transactions a high percentage of the time? Those that do are the best ABA partners. Builders and real estate brokers rank higher, while community banks, CPA firms and financial planners rank lower on this front.
* Is it reasonable to assume that a single referral source partner can create an adequate number of leads for an exclusive ABA employee to make an attractive living from commissions? An adequate flow of leads is crucial to hiring a qualified originator for the ABA and avoiding disruptive turnover. Builders and larger real estate brokers rank higher, while community banks, CPA firms and financial planners rank lower on this front.
* Are the salespeople and agents who will be doing the referring of business to the ABA also employees or are they independent agents of the referral source? Employees of a referral source can be paid by their employer for results from encouraging customers to use the ABA. A referral source may not pay 1099 agents or other non-employees for results from their efforts to bring business to the ABA. Builders, community banks, CPA firms and financial planners typically employ the people who do the referring and rank higher, while real estate brokers generally rank lower on this front. …