Fees Taken on a Personal Payment App and the Title Affiliate Payment
Yvonne is a licensed originator at Redstone Mortgage, an NDFI-licensed broker. On March 3 a borrower, Angela, calls about a refinance and Yvonne tells her she must pay a $450 application and processing fee to hold the rate. Yvonne directs Angela to send the money to Yvonne's personal payment app account, saying it is faster and comes off her closing costs. Angela sends it, and Yvonne moves it into her personal checking account. The Loan Estimate issued March 5 shows no application or processing fee in Section A or B. At closing, the Closing Disclosure shows a $450 processing fee in Section B and a $600 rate lock extension fee in Section A. No written rate lock or extension agreement exists in the file, and Angela says she never agreed to an extension. Redstone later learns Yvonne also received $300 from the title agency's affiliated marketing company for referring Angela to that title agency; Yvonne performed no work for the payment. The loan closed April 2.
1. What was wrong with how the $450 was collected and held?
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Money a borrower pays in connection with an application is not the originator's money. Funds held on behalf of borrowers must be handled through the licensed entity and held in the entity's trust or escrow account, recorded on a ledger, with a clear paper trail; they may not be commingled with personal funds, held in a personal payment app, or moved into a personal checking account.
Yvonne's method created three separate problems: commingling, an audit trail that cannot be reconciled at examination, and the appearance of taking money outside the licensed entity. It also means the fee was never booked as Redstone's fee, so the disclosure and compensation chain is broken. The correct handling is for the entity to collect the fee, deposit it into the trust account within the required timeframe, disclose it on the Loan Estimate, and refund any portion not earned. Compensation then flows through the entity's payroll, never directly from a consumer.
2. How should the fees have been disclosed, and what is the consequence of a fee appearing at closing that was not on the Loan Estimate?
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Fees imposed at application belong on the Loan Estimate, delivered within three business days of application: the application fee in Section A, and charges for services the borrower cannot shop for in Section B. A fee that increases from the Loan Estimate to the Closing Disclosure beyond the permitted tolerance is a tolerance violation. Fees set by the lender or broker and fees for required services the borrower cannot shop for are generally zero-tolerance items, so any increase requires a corrected Closing Disclosure and a refund or cure within the regulatory window. Leaving the fee off the Loan Estimate entirely and adding it at closing is the worst version of that violation.
The $600 lock extension fee is a separate problem: a lock extension can only be charged if there is a written lock agreement, the extension actually occurred, and the borrower agreed to the charge. With no written agreement and a borrower who says she never consented, the charge is unauthorized and should be refunded.
3. Analyze the $300 payment from the title company's affiliate and describe the required corrective action.
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A payment from a settlement service provider's affiliate for referring a borrower, where the recipient does no work, is the classic prohibited kickback. Section 8 of RESPA bans giving or receiving anything of value in exchange for the referral of settlement service business, and an affiliated marketing company does not launder the arrangement when no identifiable service is performed. The payment also raises a state licensing issue because it is compensation to an individual originator outside the licensed entity.
Corrective action: stop the arrangement and terminate it in writing, return the $300, and review every file where that title agency or its affiliate was used to see whether the pattern repeats. Disclose the issue to Redstone's compliance and legal function, self-report to NDFI as appropriate, refund or cure Angela's improperly charged fees, and audit Yvonne's other files for personal payment app collections. Document each step, because the regulator will ask what the company did after it learned.