Some real estate listings have required prospective buyers to be approved by the seller or possibly a particular lender before they can buy. At first glance, requiring a property seller's or lender's approval of a prospective buyer might appear innocuous. But property listing statements requiring prior approval of a buyer by a property seller or a lender is considered "mortgage steering" and is unethical and unlawful. Potential homebuyers should learn what mortgage steering is, and its consequences, before they begin looking for a home.
How Mortgage Steering Works
Mortgage steering occurs when real estate agents steer buyers to mortgage companies recommended by them. In many cases, real estate agents share relationships with particular mortgage companies and they pressure buyers into using those lenders exclusively. Mortgage steering can also occur when a real estate agent or broker steers a buyer toward a particular house and into a mortgage the buyer cannot reasonably afford.
Growth of Mortgage Steering
Mortgage steering arose in the 21st century, when some real estate agents and mortgage brokers began pushing low-income buyers into loans they couldn't afford. The basic goal of mortgage steering was to encourage buyers to take on subprime, high interest rate, loans from various mortgage companies. The unfortunate result of mortgage steering though, was a near-collapse of the subprime lending industry. Since the subprime mortgage market's near failure government oversight of real estate practices has greatly reduced, but not completely eliminated, mortgage steering.
Predatory Lending Practices
Mortgage steering is illegal, with the federal Real Estate Settlement Procedures Act forbidding any variation of it. Real estate agents may offer their potential buyers information about mortgage companies and loans, of course. But real estate agents and brokers can't push buyers toward any particular mortgage lender. Mortgage steering is also considered a predatory lending practice. In true mortgage steering, a real estate agent or broker receives compensation from a mortgage company for referring buyers to it, with buyers frequently reporting pressure from agents.
Subtle versus Outright Steering
Mortgage steering isn't always as obvious as when a real estate agent pushes a mortgage lender's brochure at a buyer and directs them to use that lender.Mortgage steering is occasionally more subtle. Some real estate agents, for example, will specify on listings that buyers must be preapproved by a lender named by the agent. Requiring a real estate buyer to qualify for a mortgage from any lender specified by the listing agent is also mortgage steering and it's just as illegal.
Avoiding Mortgage Steering
Mortgage experts caution buyers to be very cautious if they sense too much encouragement from the real estate agent toward one lender over others. Ultimately, the decision about selecting a mortgage lender is up to buyers. Real estate buyers feeling pressured by agents to select a particular mortgage lender should remind agents that the choice of lender belongs only to them, not the agent. A property buyer experiencing blatant or even predatory mortgage steering should consider contacting an attorney and the local real estate board.
- Trulia.com: Mortgage Steering
- FOX Business: Applying for a Mortgage: What Lenders Can and Can't Ask
- Dodd-Frank.com: CFPB Adopts Rules to Prevent Loan Originators From Steering Consumers Into Risky Mortgages
- LoanSafe.org: Truth in Lending Act Amended: Prohibition on Steering Incentives
- The Phoenix Real Estate Guy: Specifying a Lender. Steering? Illegal? Or just Stupid?