Another Brokers Worst Nightmare: Home Warranty Company Kickbacks May Violate RESPA

On Nov. 23, HUD General Counsel Helen Kanovsky announced HUD’s response to public comments regarding HUD’s interpretive rule directed to home warranty companies (HWC) and real estate brokers and agents. HUD’s response reiterates the Department’s unequivocal position that when HWC’s pay real estate brokers or agents for work performed on behalf of the HWC, and such work is directed toward a particular buyer or seller, then the payment is an illegal kickback for a referral in direct violation of RESPA. (RESPA News RESPA Archives, Posted On: 11/29/2010)

RESPA experts agree that HUD’s interpretive rule, intended to apply to HWC’s, could apply as well to others in the real estate, mortgage and settlement services industries.

HUD’s interpretation of Section 8 as it applies to HWC’s and the Realtor community is defined as the following:

A payment by an HWC for marketing services performed by real estate brokers or agents on behalf of the HWC that are directed to particular homebuyers or sellers is an illegal kickback for a referral under Section 8.
So what does all this mean to us? It seems to us that if you really want to avoid litigation or worse, you should just assume that referral fees based on orders in escrow are going to be risky. Just ask yourself, is a referral fee now, worth the possible headache and financial pain of a legal action later?


Is TransactionPoint a Broker’s Worst Nightmare: Part II

We just learned that Terry Tucker, an executive with Keller Williams Realty in Danville, CA sent an email to potential vendors alerting that the vendors would need to pay or their services may not be used. His office is transitioning to TransactionPoint and the only vendors that will be named as preferred providers are those vendors that agree to pay a fee for orders placed through TransactionPoint.

He writes, “Please be aware that our agents will be highly motivated to order within Transaction Point, as the only other option would be for them to pay for it out of their own pockets.”

Despite numerous calls to Mr. Tucker we haven’t received a call back. Please read the entire email here.

At a time when many federal agencies and every state attorney general are looking into the misconduct of companies in their foreclosure processes, we want to ask if the action by Keller Williams Realty described in Mr. Tucker’s e-mail would be permissible under RESPA. We wonder what HUD would think of this program if implemented at Mr. Tucker’s office?

In PART III, our next post, we’ll examine HUD’s latest ruling on illegal kickbacks under RESPA from Home Warranty Companies to real estate brokers or agents.

We are grateful for your insights and suggestions.

Reader Mail

Thanks for all the comments! We got some really good responses. Here is a sample of a few:

RB said (In reference to FATCO):

Oh yes, and they closed our office completely with one days notice. Eight employees and families on the street. They acted like no big deal, sorry! Well now I take time everyday and educate realtors and others that these companies outsource jobs. We should stop giving business to those who don’t give us jobs period…..Please pass this on and on or were doomed!

ksonti said:

Regarding out-sourcing jobs to India – keep real estate jobs in California

I agree we should keep California jobs in California – What will happen to our economy and people who depend on these jobs. I use American Home Shield for my Home Warranty Yes Stewart Title – & Of course Property I.D.

What do people in India know about California Real Estate?

We have outsourced jobs to Bangalore, India – Who will take care of us if we don’t take care of our own Californians? We should hold on to our jobs – No more outsourcing –

I Would like to have a Merry Christmas & Happy New Year – be able to feed my family and keep my home – for which I‘ve worked all my life. Keep California Working…… This goes to the reset of my fellow Californians. Love you all.

Alex Villa said:

Provident Title is holding the line for CA jobs!

Larry Wims said:

Please give Realtors information on all companies in our industry sending jobs offshore.

Keep sending them in, we love to hear your thoughts!


Forbes Magazine reported back in a November 2006 cover story that First American Title was selling more than $5.8 billion dollars a year for title insurance in a story called, “America’s Richest Insurance Racket”  Read the full story here:

Reporter Scott Woolley extensively interviewed Parker Kennedy, head of First American.  Forbes noted that thanks to computerized record-keeping, the cost of searching for a home’s ownership records online has fallen to as low as $25. The average cost for claims on title insurance policies was running approximately $74 per policy. Although Forbes concluded that everyone should agree that this is a pretty lucrative business, and title companies are fat and thriving, First American’s Parker Kennedy claimed that “Nobody is cutting a fat hog,” whatever that means.

So why is this relevant to the off shoring of jobs?  According to Forbes, Kennedy attributes his profit margins to several things including the efforts his company has made to deploy technology and move jobs offshore.  Forbes noted that in 5 years, First American closed 48 out of 50 offices in California replacing people and paper with databases and offshore data entry clerks.

Kennedy says, “In the old days, if you wanted to double your business you had to double your people. Now you can double your business and increase your staff maybe 10%.”

The Forbes article suggests that off shoring of jobs has been part of First American’s long term business strategy aimed at adding to the huge profit margins they enjoy.

Given these kinds of profits, do you think it is really necessary for them to continue their policy of sending jobs offshore?

We’d love to hear your thoughts.

Keep Real Estate Jobs in California – Stop the Off-Shoring of Work to India

Our government is showing a callus lack of regard for the well being of workers and consumers in California. Just how, you might ask?

A great example is in 2008 the U.S. government stepped in and bailed out Freddie Mac as part of the effort to save the mortgage industry – jobs and all.  What did Freddie Mac do after it received our hard earned tax dollars? It turned nearly all of its settlement services needs over to one company – First American.

And what did First American do? Replaced jobs in California and sent them to India.

First American makes a significant percentage of its business from California Real Estate professionals, home buyers and sellers and tax payers.  But it continues to send jobs out of state, and out of the country. Talk about biting the hand that feeds you!

Chances are, if you bought a home recently in California, something used in your transaction that was previously “Made in the USA,” now isn’t.

Like you, I am extremely worried about the dwindling number jobs in the California real estate industry.  Especially when a major player like, First American, is dramatically off-shoring American jobs to their subsidiary company First Indian Corporation.

What First American jobs are being performed in India?  Read their press release which states, “The First Indian Corporation’s primary areas of focus include title insurance, property tax, flood certification, default management services, and credit and property information.”

To give you an idea of the scale of how many jobs they are shipping to India’s Bangalore & Hyderabad, check out this link:

At this difficult time we should consider focusing our tax dollars and support for creating and holding on to American jobs. Let’s keep Californians and all Americans working. What’s so bad about that?

Freddie Mac is Off-Shoring American Jobs

By now you know that I’ve raised several concerns about Freddie Mac and their seemingly exclusive partnership with First American in the California real estate market.  (See my earlier stories here)

At a time when our country is desperate for lack of jobs, when our President in his State of the Union calls for a new jobs program, how, I ask, is it possible that our government is continuing support companies and programs that outsource critical jobs to India?

Like you, I am extremely worried about the dwindling number jobs in the CA real estate industry.  Especially when a major player like, First American, is dramatically off-shoring American jobs to their subsidiary company First Indian Corporation.

I am not naïve. I understand the cheap labor pool and other corporate benefits of off shoring.  But First American’s First Indian isn’t just handling mortgage services for Indian properties.  They are doing the work that Americans use to do for transactions on American soil.  And they are not just performing the services for First American clients, but those of Freddie Mac as well.

So what First American jobs are being performed in India?  According to their press release, “The First Indian Corporation’s primary areas of focus include title insurance, property tax, flood certification, default management services, and credit and property information. The company assimilates and delivers information that helps First American customers make decisions, operate their businesses and advance their lives.”

To give you an idea of the scale of how many jobs they are shipping to India’s Bangalore & Hyderabad, check out this link:

In 2008 the US government stepped in and bailed out Freddie Mac in an effort to save the mortgage industry – jobs and all.  In 2010, President Obama’s State of the Union Address restated his desire to help keep the American worker employed.

So why, I ask, would this government-owned company, Freddie Mac, continue to align themselves with a partner who so obviously sends these jobs off-shore, away from the American worker?     Why haven’t they found a partner who provides both the quality information needed as well as support American-based jobs?  We know Freddie Mac will have many responses to their RFP from America companies.  They need to choose one. Now.

As you know, we sent a note to Freddie Mac last week, looking for answers on why they refuse to complete their own RFP process.  So far we have had no response.  We welcome you to contact them, as well as others politicians, like the ones below, to try to get some answers.

An open letter to the NEW CEO of Freddie Mac: While Freddie Mac Fiddles, California Burns

January 18, 2010

Charles E. “Ed” Haldeman, Jr
Chief Executive Officer
Freddie Mac
8200 Jones Branch Drive
McLean, VA 22102-3110

Dear Mr. Haldeman:

This is not my first time writing Freddie Mac, HUD and U.S. senators regarding Freddie Mac’s seemingly anti-competitive actions in the California marketplace.

Last year, I wasn’t alone in calling out Freddie Mac’s unfair practices. It was echoed in other media and even among several lawmakers.  In particular I’m concerned with unresolved and continuing questionable business practices in the California real estate market.

In early 2009, Freddie Mac sent out a Request for Proposal (RFP) to a group of pre-selected Natural Hazard Disclosure (NHD) companies in California.  This, immediately, got my attention. By limiting the companies who received the RFP to First American and several small regional companies unable to meet the RFP requirements, while excluding qualified NHD companies from being considered, Freddie Mac succeeded in short changing the American home buyer by removing their right to choose from a collection of qualified providers.  Mr. Haldeman, as you can see, this exclusion lends further credence to the idea that your organization wasn’t acting with transparency, openness or fairness during this very influential process.  In fact, it appeared that Freddie Mac was attempting to pre-determine the “winner.”   And by selecting only one provider for these services, it appears California home buyers and sellers were the ones who would be shortchanged.

After my letter and others, most notably one from Sen. Jim Costa (D-Fresno), were sent, Freddie Mac appeared to relent and issued a second RFP, giving new firms about 48 hours to respond so they could be considered as additional Freddie Mac approved NHD report providers.  Despite the short time frame, several NHD firms submitted completed RFPs and began to wait to hear a decision from Freddie Mac.

And now, months and months later, they continue to wait.

And while these companies wait, Freddie Mac continues to treat First American Title’s FANHD as their preferred and only provider.

What amazes is me, is that nearly a year later; these qualified NHD firms continue to wait for a response from Freddie Mac.   Each time a firm contacts Freddie Mac, they are told that “Freddie Mac is too busy to respond to RFPs,” despite having issued one.

Mr. Haldeman, why won’t Freddie Mac respond?  It is no secret to those of us in the industry that Freddie Mac is using First American Title’s FANHD, nor is it a secret that First American Title CFO, Anthony “Buddy” Piszel used to be Freddie Mac’s CFO.

May I remind you the threat to harm competition is contemplated in the California Business & Professions Code Section 17200 as unfair business practices. In addition, from what I can find, this arrangement appears not comply with federal and California antitrust and unfair competition laws, and could possibly be a violation of the Sherman Act.

I imagine that you are aware that Natural Hazards Disclosure Reports are a settlement service as defined by, and regulated by HUD (the Department of Housing and Urban Development). Consequently, exclusive business arrangements like this one between Freddie Mac and First American could easily merit a look to see if they have restricted competition and thus, eliminated small companies and jobs in the state of California as well as a RESPA violation.

Mr. Haldeman, while you were not Freddie Mac’s president when the exclusive agreement between Freddie Mac and First American took place; you are now.  Stop this unfair exclusive agreement designed to eliminate competition and jobs in California.

I look forward to your reply,

Serena Ehrlich
Publisher and Editor,

CC:     HUD (Housing and Urban Development)
FHFA (Federal Housing Finance Agency)
GAO (General Accounting Office)
Senator Feinstein
Senator Boxer