The 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 assistance.

However, 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.

The 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.

Iowa licensees could be affected if they were to choose to do business as a loan originator with one of these lenders. Under current Iowa 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 a lender 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).

Iowa 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 an undisclosed commission for a transaction, IAC 193E--11.3(6)(e) provides that a licensee shall not pay any undisclosed rebate to any party to the transaction, and IAC 193E--11.3(6)(h) provides that a licensee shall not accept, receive or charge any undisclosed payments for any services 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 required disclosures.

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.