The Referral Partner Who Wants a Cut
Originator Carla gets most of her purchase leads from 'Summit Realty.' Summit's broker, Tom, proposes a formal arrangement: for every loan Carla closes from a Summit referral, Carla's company will pay Summit a $400 'marketing fee' per closed loan, calculated as a percentage of the loan amount, and Summit will send Carla a monthly list of its clients' names, addresses, and estimated home prices so Carla can call them directly. Tom also asks Carla to pay for half of a co-branded mailer. Carla's compliance officer has not reviewed the proposal. Carla estimates 20 closed loans per year from this arrangement.
1. Is the $400-per-closed-loan payment permissible under RESPA? Explain, including the relevant section.
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No. Section 8 of RESPA (12 U.S.C. 2607) prohibits giving or accepting anything of value in exchange for the referral of settlement service business involving a federally related mortgage loan. A payment that is calculated per closed loan or as a percentage of loan amount is a classic kickback - it is contingent on the referral and the closing.
A legitimate marketing services agreement (MSA) is permissible only if it pays fair market value for actual, bona fide services the provider performs (e.g., real advertising, lead generation with measurable work), is not contingent on referrals or closings, and is documented. A flat $400 per closed loan fails every prong: it is referral-contingent, closing-contingent, and not tied to services rendered.
Carla must decline the per-loan payment. A compliant alternative is a fair-market-value MSA for genuine co-marketing services, with invoices and a written agreement reviewed by counsel.
2. Tom offers to send Carla a list of Summit's clients' names, addresses, and estimated home values for Carla to call directly. What is the problem, and how should Carla respond?
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This is a referral of identifiable consumer information for the purpose of soliciting mortgage business. Under RESPA Section 8, providing a list of clients as consideration for referrals - or as part of an arrangement where the originator will solicit them - can itself be a thing of value exchanged for referrals. It also raises GLBA privacy issues: Summit would be sharing nonpublic personal information (names, addresses, estimated values) without consumer consent or a permissible purpose, and Carla would be using it for marketing.
Additionally, calling consumers directly based on a partner's client list may violate TCPA (if calls/texts are made to numbers on the Do Not Call registry or without consent) and state solicitation rules.
Response: Carla should decline the list. If Summit wants to co-market, Summit should send its own communications to its clients (Carla does not receive the list), or consumers must opt in. Any shared data must be governed by a written privacy agreement.
3. Tom asks Carla to split the cost of a co-branded mailer. Is that permissible, and what conditions apply?
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Yes - splitting the cost of a bona fide co-branded advertisement is generally permissible under RESPA, provided:
- The payment reflects a fair share of the actual cost of the advertising (not a referral fee);
- The advertisement is genuine and actually distributed;
- The arrangement is documented in writing with invoices or cost records;
- Neither party pays the other more than its proportional share;
- The ad does not condition payment on referrals or closings.
This is the classic 'shared advertising' exception recognized in HUD guidance. Carla should ensure the mailer is a real ad (not a disguised payment), keep receipts, and have compliance review the agreement. She should not combine this with the $400-per-loan proposal - that component remains an illegal kickback regardless of the mailer.