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Home appraisal’s ugly history and uncertain future

This is Part I of a deep dive into the home appraisal industry. Today we explore the origins of the appraisal industry and its current lack of diversity.

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Politics & Money

HomeStreet Bank fined for kickbacks to real estate agents, homebuilders

FDIC fined bank for fees paid through co-marketing and desk rental agreements

Over the course of this year, HomeStreet Bank moved away from the mortgage business, selling off much of its retail mortgage origination business, along with nearly all of the mortgage servicing rights associated with the loans originated in those retail outlets.

At the time, the bank said that it still planned to originate mortgages, albeit a smaller operation with loans sourced through its bank branches, online banking services, and other relationships.

But, some of those relationships have gotten the bank in trouble with the Federal Deposit Insurance Corp.

The FDIC announced Wednesday that it reached a settlement with HomeStreet Bank after an investigation found that HomeStreet had paid kickbacks to real estate agents and homebuilders in exchange for their mortgage business.

According to the FDIC, HomeStreet will pay a fine of $1.35 million for violations of the Real Estate Settlement Procedures Act.

As the FDIF states, RESPA “prohibits giving or accepting a thing of value for the referral of settlement service involving a federally related mortgage loan.”

And in the case of HomeStreet, the company was providing payment to real estate brokers and homebuilders for referrals of their mortgage business.

According to the FDIC, the issue stemmed from HomeStreet’s standalone home loan centers, many of which were sold off this year to Homebridge Financial Services.

The FDIC said Wednesday that an investigation found that HomeStreet’s home loan centers entered into certain co-marketing arrangements with real estate brokers in which the bank and brokers marketed their services together using online platforms.

The FDIC’s investigation also determined that the bank entered into desk rental agreements where the bank rented space in the offices of real estate brokers and homebuilders.

According to the FDIC, these arrangements led to the bank paying fees to the real estate brokers and homebuilders for their referrals of mortgage business, a violation of RESPA.

“While co-marketing arrangements and desk rental agreements are permissible where the fees paid bear a reasonable relationship to the fair market value of marketing or rental costs, such arrangements and agreements violate RESPA when the amounts paid exceed fair market value and the excess is for referrals of mortgage business,” the FDIC said in a statement.

As part of the settlement, HomeStreet will pay a fine of $1.35 million and has terminated all of its co-marketing and desk rental agreements.

According to the FDIC, HomeStreet agreed to the settlement without admitting or denying the violations.

In a statement, HomeStreet Bank CEO and Chairman of the Board Mark Mason said that the actions the bank was accused of are commonplace in the industry.

“The marketing activities associated with the alleged violations, which are in common use in the industry today, were conducted by the bank’s former stand- alone home loan center-based mortgage origination business,” Mason said.

“The bank neither admitted nor denied the alleged violations and agreed to settle this matter to maintain its good standing with its regulators and to avoid protracted and costly legal proceedings,” Mason concluded. “These matters are now settled, and we anticipate no further FDIC action related to the alleged violations.”

[Update: This article is updated with a statement from HomeStreet Bank.]

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