Realtors, bankers at loggerheads over ‘kickback’ bill
Measure would allow referral fees for directing business to lenders
As New Hampshire legislators make a series of moves that they say are designed to better the business landscape, the banking and real estate industries are clashing over whether a bill that would allow referral fees for Realtors is a good business move.
House Bill 495, which was passed in the House last week, would reverse a 1994 law that prohibits Realtors from receiving a “kickback” or “rebate” from mortgage brokers or lending institutions to whom they direct commercial business.
According to federal law, Realtors cannot expect referral fees for directing residential business, but after the banking crisis of the early 1990s, the New Hampshire Legislature took it one step further, including commercial business as well.
“Certainly what we’re suggesting to the Legislature this year, and on the House side they agreed, it shouldn’t be the practice of New Hampshire, on the referral fee issue, to seek a greater prohibition than the current federal law,” said Bob Quinn, director of government affairs for the New Hampshire Association of Realtors.
Quinn said there are times when a Realtor works with a client in the commercial space whose best option is to refinance, versus moving to a new location. But, Quinn added that the broker “may not see any financial benefit from it, whereas in Massachusetts and other states, you can.”
The bill is sponsored by Rep. Linda DiSilvestro, D-Manchester, and Rep. Benjamin Baroody, D-Manchester, as well as Sen. Andy Sanborn, R-Bedford. None of the sponsors responded to NHBR’s requests.
Tom Fahey, vice president of government relations for the New Hampshire Bankers Association, said the referral fees will end up coming out of customers’ pockets, as banks raise their lending rates to cover the extra cost.
“It offsets the gains we’re trying to make in business taxes, the advantages we’re trying to give businesses who are looking to locate or relocate; we’re adding a fee on to their expansion,” said Fahey.
“It’s a more welcoming thing for business, it’s a more transparent system if a business knows there isn’t money handed on the side when they go in to a mortgage company for a loan,” he said.
The House bill does require “full disclosure of any fee” to “all parties.” And banks do not have to provide the fee, said Quinn.
“A lending institution is not going to be compelled to offer or provide a referral fee. So if they choose not to do it, they don’t have to do it,” Quinn said. “What we’re suggesting is, let the market decide. If there’s no market, there’s no market. In other states it’s worked for lending institutions as well as the brokers.”
To counter any fears that small banks will be at a disadvantage, Quinn argued the referral fees are a way to get the bank’s name out there, for those with nonexistent marketing budgets.
“It works in Massachusetts, and there haven’t been any negative consequences so our commercial brokers would like the same opportunity, and they feel like it’s a slight competitive disadvantage to their competitors over the border,” Quinn said.
But Fahey argued there will be situations where Realtors rake in twice, earning commission for the sale of a property and helping clients land lending opportunities. The very language of the original bill, passed in 1993, uses the word “kickback,” which astonishes him that the Legislature is considering allowing them.
“Our law says right now these payments are illegal and you shouldn’t be paying somebody to give them the business,” said Fahey.
He added that he thinks the state law should remain as is to align with banking regulations.
“Under existing banking law, it’s a Class A felony for anyone who works at a bank to take any kind of fee or gift based on the expectation there’s going to be a loan made,” Fahey said. “But [if HB495 passes] he’s expected to make one to land a commercial loan.”
The Senate has not yet scheduled a hearing date on the measure.