loanDepot RESPA and Antitrust Possible Violations

loanDepot RESPA and Antitrust Possible Violations

A copy of the request filed with the DOJ and the FTC asking to review practices of mellohome “paper” brokerage.

Copy of author’s official request that asks the United States Federal Trade Commission (US-FTC), the United States Department of Justice (US-DOJ), and the United States Consumer Financial Protection Bureau (US-CFPB) to investigate mello Home Services, LLC brokerage on the grounds of an alleged violation of the Federal Trade Commission Act of 1914, an alleged violation of the Section 1 of the Sherman Antitrust Act of 1890 (15 U.S.C. Chapter 1), alleged violation of RESPA (12 U.S.C. 2607) Section 8, as well as any other possible violations of antitrust and consumer protection laws currently ratified and enforced in connection with possible consumer allocation, unlawful kickbacks, and market allocation practices.

Attn: Citizen Complaint Center, Antitrust Division
Department of Justice
950 Pennsylvania Ave., NW Room 3322
Washington, DC 20530
Attn: Office of Policy and Coordination
Bureau of Competition
Federal Trade Commission
600 Pennsylvania Ave. NW Room CC-5422
Washington, DC 20580
Attn: CFPB Regulatory Implementation
Consumer Financial Protection Bureau
1700 G St., NW
Washington, DC 20552

What companies or organizations are engaging in conduct you believe violates the antitrust laws?

mellohome (DBA mello Home Services, LLC)
5465 Legacy Drive, Suite 450
Plano, TX 75024
Phone: (888) 946-3556
Texas TREC License 9006745

Further, a partner network of an unknown number of real estate agents who choose to execute blanket broker-to-broker referral agreements in an alleged collusion scheme with mello Home Services, LLC real estate “paper” brokerage.

Why do you believe this conduct may have harmed competition in violation of the antitrust laws?

loanDepot, under its parent company LD Holdings, claims to be the second-largest non-bank consumer lender in the country. The company provides an origination, processing, and servicing platform for residential mortgages in the United States. loanDepot has now joined several other mortgage lenders, who have benefitted from record-low interest mortgage and refinance rates to deliver sky-high loan origination fees revenues, now are in a push for an IPO.

On January 11, 2021 loanDepot, Inc. filed a Form S-1 with the Securities and Exchange Commission that, among other things, states: "mello Home Services, LLC is our captive real estate referral business started in 2018. A large portion of our purchase-oriented customer leads have not yet selected a realtor, thus affording us the opportunity to provide a more integrated customer service between the two key home-buying functions, as well as capture ancillary revenue in a RESPA-compliant manner."

There is a major problem with this admission of fact, starting with the false premise that loanDepot's "captive real estate referral business" somehow operates in a RESPA-compliant manner. This scheme is designed entirely to by-pass RESPA’s prohibitions against kickbacks and it operates by means of broker-to-broker collusion in a blatant violation of Business and Professions Codes, RESPA (12 U.S.C. 2607), and the Sherman Antitrust Act (15 U.S.C. Chapter 1.)

In a public statement about the mello Home Services scheme, loanDepot CEO states: “As America’s digital marketing leader in the homeownership space, we spend hundreds of millions of dollars to connect with homebuying consumers each year, and increasingly, these home shoppers are not yet working with a real estate agent. Mello Home unleashes our digital marketing power to real estate agents by connecting them with homebuyers who’ve been pre-approved by loanDepot’s local loan consultants and are ready to shop and close with a local real estate agent.”

mello Home Services operates under a broker license in Texas TREC License 9006745, but it does not produce any services that are typically offered by real estate agents and does not represent consumers when buying or selling real estate in any state. In exchange for matching consumers with a Partner Agent, mello Home Services is compensated by the Partner Agent with an undisclosed percentage of their commission, agreed in advance.

Real estate agents join the mello Home Services scheme for free, but they all agree to pay a blanket referral fee (an undisclosed broker-to-broker commission kickback) to mello Home “paper” brokerage for every transaction closed with a client from the scheme. The company claims that this scheme is "free to use" for consumers. Of course, no licensed real estate broker ever works for free, and no licensed real estate broker can legally allocate consumers between competing brokers.

All blanket referral agreements between licensed real estate brokers are prohibited by the virtue of the Sherman Antitrust Act. RESPA specifically requires brokers to share kickbacks on commissions for specific transactions in a brokerage capacity - as a matter of an individual broker-to-broker referral, instead of systematic abuse of blanket referral agreements.

mello Home Services primary motivation in the scheme is to convert consumers' information into a massive volume of kickbacks among random brokers across the United States. mello Home Services is a broker-to-broker collusion scheme that utilizes its parent mortgage company consumer’s information and passes it along to a colluding broker who is willing to pay for it with a cut of their commission. All Partner Agents agree to pay mello Home Services a pre-arranged referral fee, on all closed transactions, through their employing broker.

A referral agreement between mello Home Services and a Partner Agent for a random transaction that may or may not happen sometime in the future is executed in advance. mello Home Services engages in consumer and market allocation schemes with partner Agents brokerages, because it is a licensed broker itself. Instead of representing consumers to help buy and sell homes, the company actively disengages from its licensed activities so that every Partner Agent knows that mello Home Services brokerage will not compete with them to represent consumers in a real estate transaction.

RESPA (12 U.S.C. 2607) Section 8 narrowly allows payments under cooperative brokerage and referral arrangements between real estate agents and real estate brokers. This limited exemption on kickbacks only applies to fee divisions within real estate brokerage arrangements when all parties are acting in a real estate brokerage capacity.

mello Home Services does not act in a real estate brokerage capacity, instead, their real estate license is used to collect a blanket referral fee from the largest number of brokers possible. Sherman Antitrust Act, effectively, requires all active real estate brokers to proactively compete for consumers without entering into agreements with any other brokers that restrain free trade. An agreement or an understanding between brokers not to compete for a mutual profit is a "per se" violation of antitrust regulations in the United States.

It is a per se violation of the Sherman Act for real estate brokers to agree on a “standard” referral fee that will be paid for producing a client. Real estate professionals are not allowed to enter into “standard” referral agreements because such agreements always restrict free trade.

To comply in good faith with RESPA (12 U.S.C. 2607) Section 8 exception for cooperative brokerage and referral arrangements, real estate agents must render referral agreements in a particular instance for a particular transaction.

mello Home Services owes absolutely no duty of care to consumers and takes no responsibility for the transaction, despite receiving a direct financial benefit from the home sale or purchase completed by a referred brokerage.

Actions of mello Home Services scheme and Partner Agent participants directly increase the costs of owning homes in the United States due to added hidden blanket referral fees, consumer allocation practices, and reverse completion between brokers. Partner Agents in the scheme have no incentive to compete for consumers with lower fees, instead, they have an incentive to compete for mello Home Services’ attention with higher kickbacks. In this scheme, both colluding licensed brokers benefit from offering consumers higher commissions. mello Home Services promotes Partner Agents as a way to limit competition with those agents outside of the network, thus limiting free-market competitive forces and steering consumers in self-interest.

mello Home Services rakes in hidden junk fees while consumers are fighting their way through a housing affordability crisis.

As long as referring schemes, such as mello Home Services, are allowed to operate, brokers looking to represent consumers are naturally encouraged to participate in the scheme. “There are no upfront costs, only pay us once the transaction closes,” is an attractive proposition to a broker who acts on said proposition by simply increasing a quoted commission to any consumer who comes as a referral. Any broker who chooses not to participate in such schemes risks losing “free business.” Such an environment is highly poisonous to a healthy real estate representation market.

mello Home Services referral-only collusion scheme secretly harms real estate consumers and diminishes the efforts of competitive independent agents to provide a tangible service at an independently set competitive price.

As a matter of fair real estate transactions across the United States, there is no excuse to maintain these blanket broker-to-broker collusion schemes established by a handful of “paper” brokers, such as mello Home Services.

The government must treat mello Home Services as a broker because it is paid as a broker and is licensed as a broker. mello Home Services is not a technology platform, as it claims since technology companies do not cut into the fees associated with buying and selling real estate. Licensed brokers are not allowed to promote the services of competitors for profit. A licensed broker must promote their self-performed services directly to consumers and exist to help consumers buy, rent, and sell real estate.

The entire RESPA prohibition against kickbacks was enacted specifically to stop mortgage companies from entering into “symbiotic relationships” with random real estate brokers. mello Home Services may seem like a clever by-pass of RESPA’s prohibition against kickbacks, but this loophole is built entirely on “blanket” collusion agreements prohibited by the Sherman Act.

RESPA further requires brokers to act in brokerage capacity in order to pay and/or accept kickbacks. mello Home Services brokerage must offer consumers a tangible service as a licensed broker, but instead, it acts as a “blanket” referral fee intermediary between thousands of random real estate agents and the parent mortgage company, loanDepot.

All real estate brokers must compete with one another; there is no exception. In the event brokers organize their operations into blanket referral fee networks, this basic rule of free competition fails – a broker who organizes the scheme, in one way or another, refuses to compete with participants of the scheme.

What is your role in the situation? For instance, are you a user, customer, competitor or supplier?

I currently serve as a CEO HomeOpenly. HomeOpenly is an Open Real Estate Marketplace™ designed and built to improve the homeownership experience in the United States.

HomeOpenly is a technology company that designs, builds, and maintains a series of online marketplace solutions with a focus on a home search, automated valuation modeling (AVM), home buyer's and seller's representation services, mortgage origination, refinance, home insurance, renovation, design, staging, home inspections, home security, moving, home maintenance, title, escrow, cash offer stand-in programs, home warranty, and other real estate products and services.

HomeOpenly operates subject to a 0% rake as our primary competitive advantage to establish a competitive fee schedule for service providers with the use of network effects. HomeOpenly is not a broker and all service providers on our network compete for consumers individually. Our efforts are actively hampered by anticompetitive practices of mello Home Services brokerage.

Successful implementation of an Open Marketplace™ platform in the real estate industry requires full enforcement of existing antitrust laws that are enacted to protect US consumers.

As long as brokers can trade consumers as “leads” between independent service providers in exchange for blanket referral fees, Open Marketplace™ continues to operate at a competitive disadvantage.

Who is harmed by the alleged violations? How are they harmed?

Consumers are eventually harmed by Partner Agents and mellohome use of blanket referral agreements. Hidden fees and anticompetitive consumer allocation practices always result in lower service quality or higher prices to consumers.

If consumer allocation via blanket referral agreements in residential real estate is allowed to continue, this problem will grow into a single offer proposition where the service rates and service quality is set by a small subset of networks, against consumers’ best interests.

Consumers should not be subjected to pre-negotiated kickback agreements when buying or selling real estate. All rates and service levels in the United States must be negotiated in a competitive setting to protect an open competitive market economy from decay. All licensed brokers must always compete with one another, and no licensed broker must ever exist on "paper" to facilitate unlawful kickbacks prohibited by RESPA.

If you have a question or comment about an antitrust issue, you may submit it to the Bureau of Competition at the United States Federal Trade Commission and/or to the Antitrust Division of the United States Department of Justice

Related to: antitrust, real estate, loanDepot, mellohome, kickbacks, consumer allocation, referral fees, RESPA, Sherman Act

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Last updated: February 01, 2021
First published: February 01, 2021