Realtor Referral Fee and Credit-Report Request
A loan originator at a mortgage brokerage has a productive relationship with a real estate agent. The agent proposes a written 'marketing services agreement' under which the agent will refer buyers to the loan originator and the loan originator's company will pay the agent's marketing LLC $750 per closed loan. The agent also asks the loan originator to email copies of each referred borrower's credit report and pre-approval letter so the agent can 'pre-screen' them before showing homes. The loan originator's sales manager says the arrangement is common and tells the loan originator to use the agent's LLC because 'it's not a settlement service.' The loan originator has not yet signed the agreement. No borrower has authorized the credit-report sharing.
1. Analyze the $750-per-loan payment under RESPA and explain whether the marketing LLC structure changes the answer.
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The payment is a red flag for a prohibited referral fee under RESPA Section 8. Paying $750 per closed loan in exchange for referrals of settlement service business is a thing of value for the referral of business, not a payment for a bona fide service. Putting the payment through the agent's marketing LLC does not cure the problem if the substance is pay-per-referral. A permissible marketing arrangement requires actual services, fair market value, and a written agreement, and it cannot be conditioned on referrals or closed loans. The per-closing structure strongly suggests a kickback. The loan originator should not sign the agreement and should escalate the proposal to compliance. RESPA penalties can apply to both the payer and the recipient.
2. Can the loan originator send borrower credit reports and pre-approval letters to the real estate agent without borrower authorization?
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No. A credit report contains nonpublic personal information, and sharing it with a real estate agent who is not authorized by the borrower raises Gramm-Leach-Bliley privacy issues and may violate the lender's information-security policies. The loan originator should not email credit reports or detailed pre-approval letters without a documented authorization and a legitimate need. Even with authorization, the loan originator should share only the minimum necessary information. The agent's 'pre-screening' request is not a valid basis to distribute credit reports. The loan originator should decline, explain the privacy rules, and offer only a generic pre-approval status if the borrower has authorized communication.
3. How should the loan originator respond to the sales manager, and what should be documented?
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The loan originator should tell the sales manager that the $750-per-closing arrangement appears to violate RESPA and that the credit-report sharing raises privacy concerns. If the manager repeats the instruction in writing, the loan originator should escalate to compliance or legal rather than rely on the manager's assurance. Document the agent's proposal, the manager's instruction, the loan originator's refusal, and any borrower authorization or lack thereof. Do not sign the agreement or send the credit reports while the issue is unresolved. Ethical conduct here means protecting the borrower's information and refusing a compensation arrangement that is tied to referrals, even if it is described as marketing.