Mortgage Daily

Published On: May 10, 2004
HUD Investigating HomeBanc’s Alliances with REALTORS

Strategic alliances being reviewed for RESPA violations

May 10, 2004


HomeBanc Mortgage Corp., an Atlanta-based company attempting to raise half a billion dollars through a public stock offering, has landed in the sights of federal regulators.The company has disclosed it is the target of a federal investigation by the Department of Housing and Urban Development, or HUD.

HUD is investigating if HomeBanc’s “strategic alliances” with real estate brokers and homebuilders violates the federal Real Estate Settlement Procedures Act, or RESPA, which bans the payment of referral fees or kickbacks in the mortgage industry.

HUD has acknowledged the investigation but will not comment on it.

HomeBanc made the disclosure in a public filing with the Securities and Exchange Commission, Mark Scott, a company executive, said in a phone interview.

Scott said the company feels like it has done nothing wrong.

“This is a fairly routine investigation,” Scott said. “HUD has the prerogative to ask any question they want … but HomeBanc has several (legal) opinions indicating the company’s compliance with HUD regulations.”

HomeBanc received a letter from HUD on March 17. The agency wanted information “about certain aspects of our builder and Realtor alliance program,” Scott said.

HomeBanc replied in late April. Scott would not release the letter nor its contents.

The company also said in the filing, known as an “S-11,” that it believes no violations of RESPA occurred.

HomeBanc said while RESPA is designed to crack down on and discourage kickbacks it does allow “payment of reasonable value for services actually performed and good and facilities actually provided.”

“Our strategic marketing alliance agreements provide flat monthly fees to REALTORS and home builders for rental of space and the performance of services,” the company said in the government filing.

“Accordingly, we believe that our strategic marketing alliances comply with RESPA,” HomeBanc said.

Such alliances are common, but HUD keeps a watch on lenders and mortgage companies so REALTORS or builders are not being paid to send loans to one company.

HomeBanc has more than 100 alliances with builders and REALTORS throughout the Southeast. The company pays rent and other costs so its loan brokers can work in the offices of Realtors and builders, it said in the filing.

HomeBanc’s loan volume reached nearly $6 billion last year and $5 billion in 2002, according to the company’s financial statements.

The company is in the process of trying to convert to a publicly traded Real Estate Investment Trust, or REIT. REITs take money raised through the sale of stock and invest in mortgages, real estate and other mortgage-related ventures. REITs also pass on most of the company’s earnings directly to investors.

In a written statement, HomeBanc said it hopes to raise $500 million in the offering.

Scott said he did not know when the stock would be sold, but he expects the sale to take place this spring or summer.

Patrick Crowley is a political reporter and columnist and former business writer for The Cincinnati Enquirer. Email Patrick at: [email protected]

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