Lender Vs. Realtor Over Fee

WASHINGTON - Call it showdown time at Mortgage Gulch. The two industry groups - realtors and mortgage lenders - that touch the vast majority of home sales and finance transactions in the United States are gearing up for unprecedented and costly warfare against each other. The battle will be fought on Capitol Hill, in state legislatures and in the news media.

The issue: Whether home buyers gain or suffer when a real-estate agent assists them in identifying, analyzing or applying for mortgage financing, and then either receives a fully disclosed fee or is eligible to do so.

To most traditional mortgage lenders, allowing real-estate agents to earn money from home financing is tantamount to handing over the keys to the chicken coop. It opens the door, they charge, to a system in which agents are tempted to steer home-financing business to whoever offers the fattest fee, not necessarily to the lender with the best loan. Hundreds of mortgage lenders across the country could be forced out of business by deep-pocket conglomerate lenders tied into big banks and even foreign-controlled money sources.

``It's an inherent conflict of interest,'' says Warren Lasko, executive vice president of the Mortgage Bankers Association of America. ``We're on the right side on this one,'' he adds. ``We're on the consumer's side.''

Baloney! answer realtors and a handful of large, high-tech mortgage firms whose computerized loan-origination systems prompted the fight. The rapid technological advances of the past decade, they say, have totally changed the mortgage-finance landscape. Prospective home buyers can now sit down at a computer terminal in their local real-estate agent's office and shop nationwide for the most competitive financing terms.

They can also be walked through the time-consuming initial loan-origination steps - income-qualification tests, credit-check documentation and the like - on the computer. In some cases they can even walk out of their realtor's office with a legally binding, rate-locked loan commitment in 15 minutes or less - the standard used in some locations by Citicorp Mortgage's ``Mortgage Power'' program. Prudential Realty's computerized loan system envisions lap-top terminals, used by agents at a home site, to find the most cost-effective financing for buyers while they're on the premises.

Given such important advances in service, realtors argue, why shouldn't agents be entitled to fair compensation, fully disclosed to and paid by the purchaser who benefits? Computer technology doesn't inherently steer buyers to one source or another: It opens the door to wider price competition, more efficient shopping.

That, the realtors say, is what's really driving traditional lenders up the wall, not their devotion to the consumer.

The issue pits three of the largest lending trade groups - the Mortgage Bankers Association of America, the U.S. League of Savings Institutions, and the National Council of Savings Institutions - against the nation's largest trade lobby of any type, the 800,000-member National Association of Realtors.

Led by the mortgage bankers, the lenders are mapping a multipronged attack in Congress and in state legislatures to outlaw realtors' acceptance of financing fees, disclosed or not.

On Capitol Hill, a House banking subcommittee is expected to hold hearings on the controversy early in spring. Out of the hearings could come federal legislation banning financing fees to realtors. State legislative ``guerrilla warfare,'' in the words of one mortgage banker, is being planned in at least 10 states. These include Kansas, New York, Maryland, New Jersey, Minnesota, Illinois, Tennessee, Florida, Michigan and Washington.

``If we can't knock 'em out on Capitol Hill,'' said the lender, ``then we'll have to try to kick their butts one by one in the state capitals.'' Legislation restricting realtors' activities in mortgage financing was passed last year in Connecticut, Virginia and Pennsylvania.

For their Capitol Hill and Bush administration campaign, the mortgage bankers have hired influential former Republican congressman and banking committee veteran Tom Evans.

The realtors, meanwhile, are readying an ambitious lobbying and nationwide ``educational campaign,'' scheduled for kickoff in April. At the state legislative level, the realtors expect to use their political muscle to roll back any additional restrictions.

What's in all this for you? If you're a consumer, presumably you can't lose. Both combatants insist they're doing it for you.

(Copyright 1990, Washington Post Writers Group)

Kenneth Harney's column appears Sundays in the Home/Real Estate section of The Times.