Dual Fees, a Spouse-Owned Title Agency, and a Rate-Based Pay Cut
Renee is a licensed Louisiana mortgage broker. She is paid a 1.5% lender-paid broker fee on each loan and also charges each borrower a 1% 'processing and rate advisory' fee that her broker entity keeps. For every loan she sends title work to Pelican Title, owned by her spouse; Pelican pays her broker entity $200 per closing labeled 'marketing support.' Renee tells borrowers that if they want her to 'get it done,' they should use Pelican. A borrower compares her Loan Estimate with a competitor's and asks why both the lender-paid fee and the borrower fee appear. Renee says the CFPB allows both because one comes from the lender and one comes from the borrower. The borrower's file also shows Renee's compensation was reduced by $500 when the borrower's rate was locked higher than the initial quote.
1. Analyze the two fees under the Regulation Z loan originator compensation rule. Is Renee's explanation correct?
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No. Regulation Z, 12 CFR 1026.36(d)(2), prohibits a loan originator from receiving compensation from both the consumer and the creditor in the same transaction. The 1.5% lender-paid fee is creditor compensation. The 1% fee kept by Renee's broker entity is borrower-paid compensation, even if it is labeled 'processing and rate advisory.' The label does not control; what matters is whether the charge compensates origination. A bona fide third-party charge paid to an unaffiliated provider might be treated differently, but this fee stays with the broker. Renee's explanation reverses the rule. The dual payment is a violation, and the broker should review the transaction for refunds, corrected disclosures, and a policy change to prevent recurrence.
2. Analyze the Pelican Title arrangement under RESPA Section 8. Does spouse ownership create a safe harbor?
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No. Paying $200 per closing for referrals is a thing of value under RESPA Section 8, which prohibits kickbacks and fee splits for settlement service referrals. The affiliated business arrangement safe harbor requires a timely written disclosure of the affiliation, no requirement that the borrower use the affiliate, and payments limited to reasonable value for goods or services actually provided. Renee's statement that borrowers should use Pelican 'to get it done' suggests required use and undermines the safe harbor. Spouse ownership does not exempt the arrangement. The $200 'marketing support' payment looks like compensation for referrals rather than reasonable value for services. The arrangement should be stopped and reviewed by counsel; penalties can include disgorgement and civil money penalties.
3. What is the significance of the $500 compensation reduction when the rate was locked higher?
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It raises a separate Regulation Z issue. Under 12 CFR 1026.36(d)(1), loan originator compensation may not be based on the transaction's terms or conditions, including the interest rate. A $500 reduction tied to a higher locked rate could be a proxy for a term-based payment, even if described as a pricing adjustment. The compliance officer should compare Renee's compensation across loans with different rates and lock dates, review the broker's compensation agreement, and determine whether the reduction was a legitimate correction of a disclosed fee or a term-based adjustment. If it was term-based, it is a violation independent of the dual-fee problem. The file should be documented with the actual reason for the change.