Appropriate Referral Fee for Lead from Mortgage Broker??

Hey guys,

I’m currently working the owner financing niche, and am trying to use mortgage brokers as one source of leads for buyers. The idea is for them to send me alt-a type buyers who can’t quite qualify for a loan (generally jumbos in my area). My pitch is to pay them a referral fee if we close a house with the buyer, plus use them for the re-fi within 6-36 months. Seems like a win-win situation to me, since that buyer would be trash otherwise.

What do you guys think is a fair referral fee for this type of situation? I’m looking for an idea before I start pitching local brokers.

Merry X-mas everyone!

Spencer Bunting

I think what would be fair would be to set up a “program” where he gives the buyers a list of what they need to do.

You provide a place to park the buyers safely, and then he gets all of his fees from the buyer at the time that they finance (and he is getting a big chunk of fees for a marginal qualifier).

The buyers could go elsewhere for their mortgage, but they won’t, because they have a “plan” that gives them a way to finance without any more thought. They will go straight to the guy who told them he could get them the money.

Unless the mortgage broker is short sighted, he’ll be glad to have a stash of future customers.

I would tend to agree with you. Problem is, most brokers i’ve come into contact are pretty short sided. They want something up front. Maybe this is a trait developed over the last few years where money was quick and easy.

Your “plan” is something i’m also looking to implement. The broker works with the buyer over time, this establishes a relationship between them, and builds the buyer’s credit. Buyer gets re-fi’d, broker gets his fees, I get cashed out. Win-Win-Win.

I’m thinking a $1000-2000 referral fee would be appropriate, and an attractive incentive. Also, I should note the median home price in my area is $700k-1m, so these fees are fairly small in the overall picture.

Win-Win situations only work when you know you are providing consistent value to the other person and vice versa. How many loans can you get the loan officer a year? how many leads are you getting from him/her? will one of you lose interest because you do not see fair return?

Obviously, the benefit has to be two sided, and hopefully my description has shown that is my plan. I obtain a deal, and the broker gets the re-fi.

What I’m trying to gauge with this thread is what the up front referral fee should amount to, if any at all. I know there are plenty of brokers that post here, so I’d like to hear their insight.

As a mortgage professional myself, I see the merits/benefits to sending my unqualifable borrowers to a person like yourself—aside from the back end refinance opportunity (mind you, you can’t guarantee that you can steer this), something from nothing is always better then 100% of nothing…

I assume that you are only concerning yourself with owner financing—if this is not the case, then be mindful of RESPA and the anti-referral fees that the goverance enforces.

Regards,

Scott Miller

Scott,

Appreciate the feedback.

RESPA was a concern of mine, but I dont think it will apply, since I’m solely offering OF on my own properties.

Spencer

There are several builders here in the DFW area who are working your same angle. Now that sub-prime is mostly gone they have had to look for different ways to capture the non-prime customer. My limited experience with non-prime customers is that their credit is bad for a reason, and most of them have no intention of cleaning up their credit. Just be careful that you screen your customers well because you are owner-financing and if they stop paying you have to go through a foreclosure process instead of an eviction. This can take significantly longer depending on the state you are in.

Christopher,

I’m in CA, so ~4 months is the shortest foreclosure time line.

Also, the SF Bay Area is mainly comprised of Jumbos. These are obviously tighter to qualify for, so I’ve got some more room to work with. We don’t see any 97% FHA loans. I’m primarily looking for Alt-A type buyers with decent down payment (8-10% min). Screening is going to be priority #1.