Asked Questions #1
Is an Iowa real estate licensee permitted to participate in
the various loan originator programs offered by mortgage lenders
on the Internet?
Loan Originator Programs and Iowa Real Estate Licensees
Commission has received numerous inquires relating to mortgage lenders
operating in Iowa using the Internet. To answer these questions
would require a legal interpretation or legal opinion from an attorney.
Iowa law prohibits the Commission and staff from providing legal
it appears that there are a growing number of lenders offering originator
programs. It appears that these programs contain provisions that
for the most part, are very similar with few differences. For this
reason, a few common general program provisions have been selected
for review. The provisions covered here may or may not be included
in the program you are considering.
lending companies solicit real estate licensees in other states
to become employees, then the licensee receives referral fees and
loan origination fees for sending business to the lender.
licensees could be affected if they were to choose to do business
as a loan originator with one of these lenders. Under current
license law and rules, IAC 193E--7.5(543B) prohibits the acceptance
of a fee or anything of value by a real estate licensee from
or financing company for the referral or steering of a client to
the lender for a loan shall be considered not in the best interest
of the public and shall constitute a violation of Iowa Code sections
543B.29(3) and 543B.34(8).
licensees are required to make written disclosure and/or written
permission of the client as required. For example, IAC 193E--11.3(6)(d)
provides that a licensee shall not accept, receive or charge
undisclosed commission for a transaction, IAC 193E--11.3(6)(e)
provides that a licensee shall not pay any undisclosed rebate
to any party
the transaction, and IAC 193E--11.3(6)(h) provides that a licensee
shall not accept, receive or charge any undisclosed payments
related to the transaction provided by any third party to any party
to a transaction. In addition, Iowa Code section 543B.56(2)(d)
and IAC 193E--7.9(543B) require a licensee to
disclose to a client any financial interests the licensee or the
brokerage has in any business entity which the licensee or brokerage
refers a client for service or product related to the transaction.
Iowa Code section 543B.56(3)(a) prohibits a licensee from accepting
a fee or compensation related to a transaction from a person
other than the licensee's client, unless the licensee has provided
written notice to all parties to the transaction that a fee or
compensation will be accepted by the license from such person.
In view of these requirements, it would appear that any licensee
receiving any portion of the origination fee should make the
Many of these lender promotions include a provision for the borrower
to be compensated by the licensee for the referral of prospects
that result in a listing, sale, exchange, rental, lease, or option
on real estate. Any licensee participating in this program by paying
compensation to the previous borrower for a referral, could be
in violation of Iowa Code section 543B.34(9a) which prohibits payment
of a commission or other valuable consideration for performing
any act that requires a real estate license. Iowa Code section
543B.3(7) includes in the broker definition, assisting or directing
in the procuring of prospects, intended to result in a sale, exchange,
purchase, rental, or leasing of real estate.
Licensees should also be cautious regarding agency and assure
that any required disclosures and admissions are made. Iowa Code
section 543B.56(2)(a) and IAC 193E--12.4(543B) requires a licensee
representing a seller to promote the interests of the seller with
the utmost care, integrity, honesty, and loyalty. If the licensee
is the loan originator and has access to financial information
of the buyer, a possible conflict could develop because the licensee
is still required to represent the seller and Iowa Code section
543B.56(c), 43B.56(2)(b) and IAC 193E --12.4(2) require the licensee
to disclose all material adverse fact concerning the property and
the transaction, this could include adverse confidential financial
information concerning buyer in the transaction.
Iowa Code section 543B.34(5) prohibits a licensee from accepting
a commission or valuable consideration as a broker associate or
salesperson for the performance of any other the acts specified
in this chapter, from any person, except the employing broker.
Licensees will need to seek advice from their employing broker,
designated broker and privately retained legal counsel if necessary
to determine if the contract must be entered into by the employing
broker and if all payments must be made through that broker.
Lastly, the Real Estate Settlement Procedures Act, state banking
laws and state loan broker laws probably have some degree of jurisdiction
and may affect these loan originator programs. Licensees and their
attorneys should be encouraged to contact the
Department of Housing and Urban Development, the Iowa Department
of Commerce, Banking Division, and the Iowa Department of Commerce,
Insurance Division, Securities Bureau with questions regarding
these programs and related issues such as Iowa Code section 5453C.2A
which prohibits loan brokers from collecting a fee from the borrower
prior to procurement of the loan.