The Broker's Title Affiliate and the Realtor's Desk
You originate loans for a mortgage brokerage. The brokerage's owner also owns 60 percent of Lakeview Title Agency. You are instructed to refer every purchase borrower to Lakeview because 'we make more on title.' Your Loan Estimate discloses Lakeview's title premium but says nothing about the ownership. When you ask, the owner says the affiliated business disclosure is in the closing package, which is 'where it belongs.' Separately, a real estate agent you work with offers two arrangements: she will pay you $750 for every loan you close from her referrals to 'co-market' her listings, and she will rent you desk space in her office for $1,200 a month when comparable space in the building leases for $400. Your compensation plan also pays an extra 25 basis points on any loan where title is ordered through Lakeview.
1. Is referring borrowers to Lakeview permissible, and what must the borrower receive, when, and from whom?
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The referral is permissible only through the affiliated business arrangement (AfBA) exception to RESPA Section 8, and only if all conditions are met:
- Written disclosure on a separate document telling the borrower that the person making the referral has a beneficial ownership interest in Lakeview, describing the nature of that relationship (here, 60 percent ownership), and giving a reasonable estimate of the charge for the title service.
- Provided at the time of referral - when you steer the borrower to Lakeview, which in practice is often at application or shortly after. A closing-package disclosure is too late; by then the borrower has already been referred, has usually not shopped, and cannot meaningfully choose.
- No requirement to use the affiliate. The borrower must be free to shop and must not be steered, penalized, or told the loan will be delayed if she chooses another title company.
- A bona fide charge for services actually performed, at a rate consistent with the market. The affiliate exception protects the referral relationship, not inflated fees or fee splits.
The owner's statement that the disclosure belongs in the closing package is wrong and is the kind of finding examiners cite as a systemic violation. Also, 'we make more on title' can be the business rationale, but it cannot become the script you use with borrowers - present Lakeview as an option, hand over the disclosure, and document the borrower's choice.
2. Evaluate the realtor's $750-per-loan co-marketing payment and the $1,200 desk rental.
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Both are Section 8 problems, for different reasons.
$750 per closed loan. A payment calculated per loan and conditioned on referrals is a classic kickback. Calling it co-marketing does not change the analysis. Legitimate co-marketing requires that the payment be for advertising or services actually performed, at fair market value, under a written agreement, and not conditioned on the volume or value of referrals. A flat amount per funded loan fails the fair-market-value test and the no-referral-condition test on its face, and the realtor is also exposed because receiving a fee for a referral of settlement business is prohibited.
$1,200 desk rent for $400 space. Rent is a permissible way to pay for office space, but only at fair market value for space actually used. Paying three times market means roughly $800 a month is a thing of value given in exchange for the stream of referrals, which is a disguised kickback even though it is labeled rent. The same logic applies in reverse if the realtor charged you below market. The fix: a written lease, documented market-rate analysis, actual occupancy, and separate invoicing.
Penalties are not theoretical - RESPA Section 8 carries criminal exposure and treble damages in civil actions, and both parties to the arrangement can be liable. Decline both arrangements and document the conversation.
3. Your compensation plan pays an extra 25 basis points when title is ordered through Lakeview. What is wrong with that, and what should you do?
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Two independent problems.
Compensation tied to a transaction term. Regulation Z prohibits loan originator compensation that varies with the terms of the transaction or a proxy for a term. Whether title is ordered through an affiliate is not a credit term, but paying originators more when a particular affiliate is used functions as compensation for steering settlement business, and it is the kind of arrangement regulators treat as a proxy for referral volume. Originator pay should be a flat amount per loan or a fixed percentage that does not move based on which providers are used or on the loan's pricing.
RESPA. Paying an originator a per-loan premium for channeling business to an affiliated title agency is a thing of value for the referral of settlement service business. The affiliate exception requires disclosure and consumer choice, not an incentive scheme that rewards steering. The broker's profit interest in the title agency is disclosable and permissible; sharing that profit with originators on a per-loan basis is not.
What to do:
- Ask compliance in writing whether the plan has been reviewed; a plan like this usually has not been.
- Keep originating under the flat component while the question is pending, and do not adjust your title referrals to capture the 25 basis points.
- Preserve the plan document and your emails. If the plan has already paid out, expect remediation and possible look-back exposure for the brokerage.
- Give borrowers the AfBA disclosure regardless of what the compensation plan says.