Mortgage Steering Definition

The Facts

• Mortgage steering occurs when a real estate agent encourages--or "steers"--the buyer into using the mortgage company of the agent's recommendation or choice. In many cases, the office for which the agent works is connected to a mortgage company, and the agent pressures the buyer into using that lender instead of one of the buyer's option. Additionally, mortgage steering can occur when the real estate agent or broker steers a buyer into a house, and thus into a loan, that the buyer cannot reasonably afford.
  
  

History

• Mortgage steering became a headliner topic starting in 2004, when real estate agents and mortgage brokers were accused of pushing low-income home buyers into loans they could not afford. The goal was to encourage subprime lending for large mortgage companies, but the result was what amounted to a near-collapse of the subprime lending industry beginning in 2006. Government oversight of real estate practices have reduced problems with mortgage steering for subprime lending, although steering does continue in other parts of the real estate industry.
  
  

Significance

• Simply put, mortgage steering of any kind is illegal. The Real Estate Settlement Procedures Act forbids any kind of mortgage steering. Real estate agents may offer their potential buyers information about mortgage companies and loans, but they may not encourage the buyers one way or the other too strongly. Mortgage steering is considered to be a byproduct of predatory lending practices among mortgage companies--with the real estate agency receiving compensation for referrals--and buyers should not feel pressured into the agent's lender.
  
  

Considerations

• Mortgage steering is not always as blatant as the real estate agent pushing mortgage company documentation at the buyers and telling them to use that lender. In some cases, mortgage steering can be more subtle. Some real estate agents will specify on listings that the buyer must be pre-approved by the lender named by the agent. Requiring the buyer to qualify for a loan under any specified lender is considered mortgage steering, however, and is illegal.
  
  

Expert Insight

• Mortgage experts caution buyers to be very cautious if they sense too much encouragement from the real estate agent toward one lender over others. Ultimately, the decision about the lender is up to the buyer, and buyers should politely inform real estate agents of their consumer rights if they sense mortgage steering. Additionally, if the buyers feel the steering was blatant or even predatory, they should consider contacting an attorney and the local real estate board.