the truth about joint ventures

In therefer to any vendor residential real estate industry a common entity has emerged in the last few years.  It's called the "In-House Lender".  Inner circles refer to it as the Mortgage/Real Estate Joint Venture (JV) and it's created as the joint ownership of a separate company to provide mortgage loans to the customers of the real estate agency.  The joint owners are, of course, the Real Estate Broker and a Mortgage Lender.  The JV is marketed as "an extension of services to you the customer" so that you may benefit from the convenience of "one stop shopping".  That's Nonsense!  Folks, it's about the money!  

Historically, Mortgage Loan Originators would make calls on real estate agents and attempt to convince them that they were competitive and competent and deserved an opportunity to speak with clients in need of mortgage money.  Real Estate Agents would develop professional relationships with Originators that they could rely on to ensure the deals closed, they got paid, and the customer was happy with the service.

At some point along the way, Agents began to be influenced by offers, often financial, to refer customers to the highest bidder.  Co-advertising, sponsorships for events and sometimes hard cash was offered and accepted for referrals.  Originators were basically buying the business.  That's when HUD (The Department of Housing and Urban Development) stepped in with RESPA (Real Estate Settlement Procedures Act) which prohibits accepting anything of value in expectation of referrals.  

However, if a Real Estate Broker "Owns" part of a mortgage company, or any other settlement service provider, they are legally entitled to a portion of the profits of that entity based upon percentage of ownership.  Hence the birth of Real Estate/Mortgage Joint Ventures.  Alas, a way around RESPA!  

In theory, the customer should benefit by having all services under one roof.  Unfortunately, it often results in more complacency, less competition, less competent Originators (they're usually paid less), and an inherent risk of collusion between agents and originators.  The Originator is pressured to get the deal closed not only because his or her professional reputation depends upon it but also because they are an employee of the Agent/Broker.

The alliance could work in the customer's favor if the Joint Venture partners' primary focus was on sharing knowledge and expertise to improve service.  The sad and embarrassing truth is that in most instances the focus is on circumventing the intent of RESPA at the expense of buyers and sellers.

Although we've experimented with this business model, we've yet to determine that it actually benefits the consumer.  If we, at Second Opinion Mortgage Advisory, refer to any vendor, it will be based upon their reputation for performance and competitiveness.