When Rocket Companies and Zillow find themselves in the crosshairs of federal litigation over alleged referral kickbacks, the industry takes notice. As the headlines fixate on the big players, a quieter anxiety is building among independent mortgage bankers (IMBs) and smaller lenders who lack the firepower to go toe-to-toe in a prolonged legal battle.
The key question hanging over the industry right now is whether a referral relationship crosses the line into an illegal kickback. Under the Real Estate Settlement Procedures Act (RESPA) passed in 1974, the answer was supposed to be clear.
But RESPA’s framers couldn’t foresee the future of housing. Half a century later, algorithmic lead routing, co-branded digital marketing and vertical integration shape how business is done, and the current laws lack clarity to match that reality, industry insiders say.
In a lawsuit filed in late January, Rocket Companies is accused of having “exploited the vulnerability of homebuyers for profit,” by steering consumers to use their financing “even though Rocket Mortgage’s terms are disadvantageous to the clients.”
Separately, Zillow is facing similar allegations in a federal class-action lawsuit that accuses the mega real estate platform and its real estate partners of “predatory practices,” including inflating home prices, defrauding buyers and steering buyers toward Zillow’s mortgage products.
“The law has been stagnant for a long time,” said Jonathan Kolodziej, a partner at Bradley Arant Boult Cummings. He co-leads the law firm’s regulatory compliance practice. “We’re 50-plus years in now, and no real change (to RESPA). We’re pushing a square peg through a round hole, applying historical legal frameworks to modern ways of doing business.”
Surge in litigation follows federal pullback
RESPA’s Section 8 prohibits giving or accepting anything of value in exchange for referral settlement service business. That’s always been the rule. What’s changed is what counts as an item of value in digital terms, who’s enforcing it and why.
Kolodziej points to the pullback of the Consumer Financial Protection Bureau (CFPB) under the Trump administration as a significant accelerant to the current spate of referral kickback litigation.
With the CFPB narrowing its focus mostly to mortgage fraud and tangible consumer harms, state attorneys general have moved to fill the gap, feeling “it’s their responsibility to pick up some of that slack,” he noted. Meanwhile, plaintiffs’ firms are seeing an opportunity to jump into the fray.
Ken Trepeta, president and executive director of RESPRO, a Washington, D.C.-based trade group representing the settlement services industry, views the current environment as manufactured pressure rather than genuine consumer advocacy.
“This is not real; this is manufactured by law firms to basically squeeze these companies,” Trepeta said. “There’s not a lot of real consumer complaints about any of this stuff. It’s just that we’re going to find a technical violation or try to make something stick.”
He noted that the emphasis on “steering,” a term that’s become somewhat of a legal boogeyman in current complaints, is telling.
“Consumers who don’t know anything about something need some help or need recommendations,” Trepeta explained. “When I went to buy a house, I had questions for my Realtor®. If he just told me, ‘I can’t answer any of your questions, and I can’t recommend anyone,’ well, you’re useless to me.”
The Rocket lawsuit, Trepeta noted, tracks closely with allegations developed during a CFPB investigation under the previous administration. When the agency’s leadership changed, former staffers took their institutional knowledge to private law firms and filed, Trepeta said.
A gray zone gets grayer
Referral relationships between loan officers and real estate agents are a tale as old as time. The practice is considered the connective tissue of how real estate deals get done.
RESPA, in an attempt to protect consumers, drew a line against paying for those referrals. But what it did instead, experts say, is create a massive gray zone that’s become increasingly more complicated as the industry evolves with technology.
Bill Dallas, a 40-year mortgage veteran and chairman of Dallas Capital, consults with some of the nation’s top IMBs, says he’s seen his own clients navigate this no man’s land for decades. Current litigation is forcing a reality check among lenders, he said.
Dallas said that smaller and mid-size IMBs are especially exposed, not because they’re doing anything more egregious than the larger players, but because they have fewer resources to absorb the potential outcomes.
“All it takes is one regulatory shutdown for them to just be completely out of business,” he explained. “Most of these companies don’t have a lot of capital.”
The permitted structures—desk rentals, marketing services agreements, joint ventures and lead-share arrangements—are well established in theory. But in practice, Dallas said, compliance often lives in an underbelly of informal arrangements that haven’t been stress-tested against RESPA.
“There’s still pay going on between parties,” he said. “I’ll hear loan officers complain a lot about being held hostage (telling him) ‘If I want to get a deal from this Realtor®, I’ve got to pay him something.’”
Jon Overfelt, director of sales and owner at American Security Mortgage in Charlotte, North Carolina, said when considering any referral or partnership agreement, he has one question: How does it benefit the consumer?
Overfelt said most joint ventures and MSAs don’t make sense for his business. That’s because their low capture rates don’t justify them—especially when factoring in the compliance burden.
“If you had a 20% capture rate, you would be the Michael Jordan of capture rates,” Overfelt said. “They just don’t work.”
Smaller players squeezed by compliance costs
The Mortgage Bankers Association’s (MBA) regulatory counsel team, including Alisha Sears and Justin Wiseman, released a 2024 white paper making the case for RESPA reforms. Among their core arguments are that Section 8, as written, hasn’t materially lowered settlement costs, and the compliance infrastructure the legislation demands disproportionately harms smaller lenders.
“RESPA never really has had the ability or shown that it’s reduced service or origination costs or closing costs,” Wiseman pointed out. “Even if it has, do we need it today when we have a huge thicket of other regulations that govern every aspect of that process in granular detail?”
He notes that finding a home for sale when RESPA became law required physically going to a real estate agent’s office to flip through a listing book. Times have changed. Disclosures have been standardized and are incredibly detailed, and access to home listings has been democratized thanks to abundant online search platforms.
The MBA’s white paper advocates for replacing the current fair market value standard that governs MSAs with a true arms-length transaction analysis. Additionally, the trade group is pushing for disclosure-based shortcuts where marketing affiliates are clearly disclosed to consumers.
While critics might argue that these reforms shift the burden onto consumers, Wiseman said that if transactions are truly arms-length and don’t rely on referrals, no consumer protection has been eroded. Instead, the market determines the outcome, he added.
“Our view is that RESPA reform benefits small lenders and large lenders by making the rules clear, easy to understand and easy to follow,” Wiseman said. “That will result in competition not on who has the best lawyers…it will result in competition based on who can provide the most value to customers in the market.”
What happens if the plaintiffs win?
That’s the question on everyone’s mind. For smaller operators, the range of outcomes in these high-profile cases has significant ramifications, even if they’re never on the court docket.
Kolodziej tracks enforcement matters and class actions closely, watching for final verdicts, consent orders or appellate decisions that could change how Section 8 is applied. Settlements, he cautioned, bring a lot of noise. “People settle cases all the time for all sorts of different reasons. A lot of times, they don’t even believe they did anything wrong,” Kolodziej said.
Trepeta added that what matters more are adjudicated outcomes or state consent orders, which show the industry how regulators are interpreting the statute.
But he also warns that some outcomes can change the course of a company forever. Take, for instance, the high-profile RESPA enforcement action the CFPB took against PHH Mortgage in 2014. The CFPB alleged that PHH orchestrated a mortgage insurance kickback scheme as far back as 1995, resulting in real harm to consumers. PHH eventually prevailed in the D.C. Circuit Court of Appeals after years of winding through the courts. But it came at a steep price.
“There was a Pyrrhic victory, because it cost them tens of millions of dollars; their company was never the same again,” Trepeta said. “That type of scenario exists out there where you have folks who feel pressure to settle a case to avoid the legal fees.”
Settling to avoid a drawn-out, costly legal battle (and not because you’re guilty) prohibits practices that may not be illegal, Trepeta pointed out. For lending and real estate professionals, the default best practice concerning referral or marketing relationships is “disclose, disclose, disclose”—even if it’s not required by RESPA, he added.
Affinity-based partnerships at the corporate level—think Credit Karma routing to a lender, or Rocket acquiring Redfin to capture consumers before they think about a mortgage—represent where acquisition dollars are shifting. Whether or not they’re compliant is another story, experts say.
The rules haven’t changed (yet)
For now, the MBA’s Sears is careful to draw a clear line between advocacy for reform and any suggestion that current practices are up for reinterpretation. Her hope, she said, is that today’s complex rules will be changed to alleviate difficulties for different players and create more clarity that benefits everyone.
Overfelt advises practitioners to stop hoping the CFPB’s reduced presence translates into a compliance break. The states are not backing down, and they’re “much more aggressive than the CFPB was, or ever will be,” he added.
Dallas sees the lead-generation disruption from recent bombshell lawsuits as potentially self-correcting, regardless of how the cases resolve. Agentic AI, changing opt-in laws and the prohibitive cost of buying leads are already forcing lenders to rethink acquisition strategies.
“The top of the funnel where the lead is coming from is out of your control for the first time in the history of mortgage,” Dallas said.
In an era when a 50-year-old law is being stretched to cover digital ways of doing business, compliance has never been murkier. And the stakes for getting it wrong have rarely been higher.
Kolodziej said his clients aren’t asking for a free pass; they just want to know what the rules of the road are so they can follow them. “When it’s not clear is when everybody suffers.”
