Zillow Group (Z, ZG) shares have struggled in recent weeks, and new headaches may be coming investors’ way.
The real estate portal historically relied on advertising revenue from real estate agents listing homes, but Zillow’s strategic focus in recent years has been to add revenue from mortgage providers. While this has been beneficial to revenues in the past, the new income stream may be at risk due to a possible breach of regulations.
While banking regulators have not publicly commented on the issue, a new post on Inman.com warns that Zillow’s lender leads program may have violated The Real Estate Settlement Procedures Act (RESPA). According to Inman, this is because Zillow takes customer information and directs those customers to a mortgage company. That is allegedly a form of mortgage endorsement, which is prohibited by RESPA.
Inman notes that regulators have not taken any action against Zillow despite growing controversies around the issue among the mortgage lending and real estate industry. “The Consumer Financial Protection Bureau (CFPB) has not issued any guidance in regards to whether participating in Zillow’s lender co-marketing program violates RESPA, which has promoted uncertainty among agents and lenders across the country,” Inman writes.
Zillow has used mortgage referrals to bolster growth. In the fourth quarter of 2016, Zillow reported mortgage revenues rose 41 percent year over year to $16.5 million, accounting for 7.3 percent of total revenues.