The $500 Referral and the Unlicensed Coordinator
Tasha is a licensed MLO at a supervised lender in South Portland. She pays real estate agent Denise $500 for every loan that closes, under a one-page "marketing services agreement" that describes no services and requires no work product. Denise does nothing but send buyers to Tasha. Tasha also pays Denise's brokerage $1,000 a month for co-branded mailers; Denise's brokerage contributes nothing toward the cost, and the arrangement ends if referrals stop. Separately, Tasha pays Marcus $250 per application. Marcus is unlicensed; he answers rate questions on the phone, takes applications, and collects documents. Tasha also pays her cousin $100 for each lead he sends. A borrower's closing disclosure shows a $500 "marketing fee" that was paid from loan proceeds. Tasha says these are normal business expenses and that no borrower was overcharged.
1. Which of these payments are lawful, which are not, and why?
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Each payment must be tested against two questions: is it for a referral, and is the recipient licensed for what they are being paid to do?
- $500 per closed loan to Denise - unlawful. RESPA Section 8 prohibits giving or receiving anything of value pursuant to an agreement that settlement service business will be referred. A "marketing services agreement" that requires no services is a sham label; substance controls. It is also an unfair or deceptive practice under Maine law, and a fee that is a referral payment cannot be legitimized by disclosing it on a closing disclosure.
- $1,000/month co-marketing with the brokerage - currently unlawful, potentially salvageable. Co-marketing can be permissible only if it is a bona fide, arms-length arrangement at fair market value, not conditioned on referrals, for services or advertising actually received, with each party paying its proportionate share. Here the brokerage pays nothing and the arrangement is tied to referral volume, so it is a thing of value for referrals.
- $250 per application to Marcus - unlawful. Compensation tied to applications paid to an unlicensed person for origination activity is a licensing violation regardless of RESPA.
- $100 per lead to the cousin - unlawful. A per-lead payment for a settlement service referral has no identifiable service behind it and cannot be defended as a bona fide fee.
"No borrower was overcharged" is not the standard. The harm is to competition and to the integrity of the referral process.
2. What may an unlicensed person such as Marcus lawfully do, and where is the line?
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Unlicensed staff may perform clerical and administrative work: data entry, document collection and indexing, scheduling, status updates that disclose no new terms, and file assembly. They may not do anything that requires an MLO license.
The line is crossed when the person:
- Takes a residential mortgage loan application, in any form, including by phone.
- Quotes or negotiates rates, points, fees, or loan terms.
- Advises a consumer on loan products or recommends a program.
- Communicates with a consumer to obtain or verify the information on which an underwriting decision will be based.
Marcus's rate discussions and application-taking are unlicensed origination. Tasha's employer is also exposed: a licensee must not permit an unlicensed person to originate, and its supervision system should have caught per-application payments to a non-licensed person. The fix is binary - either license and sponsor Marcus, or restrict him to clerical tasks with no consumer contact on terms and stop the volume-based pay.
3. What corrective action should Tasha and her employer take, and what are the consequences of doing nothing?
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Stop first, then unwind, then report:
- Stop all three payments immediately and terminate the sham agreements.
- Unwind - determine whether referral fees were financed into loans, credit or refund affected borrowers where required, and correct any closing disclosures that mislabeled the payment.
- Remediate Marcus - restrict to clerical work or license him; retrain him on what he may say to consumers.
- Self-report to the Maine Bureau of Consumer Credit Protection and cooperate; a licensee that identifies and corrects a Section 8 arrangement is in a very different position than one that is found out.
- Review two years of files for similar arrangements, and report any MLO termination to NMLS.
If nothing is done, the exposure is layered: RESPA remedies, including actual damages and treble damages in class actions; Maine unfair-or-deceptive-practices enforcement; and license discipline for Tasha and for the company that permitted unlicensed activity and paid for referrals. The presence of a "marketing fee" on a closing disclosure is documentary evidence the Bureau can find without any cooperation from the parties.