RESPA and Broker Fees
Question: Our mortgage department wants to develop a relationship with a local mortgage broker. The bank would refer applicants to the broker. The broker would prepare the complete application, including verifications and underwriting. The bank would make the final decision and fund the loan. What we need to know are the RESPA implications if we pay or charge fees.
Answer: While you aren't specific in when, how and how much the fees would be, there are several legal ones and also illegal ones. Let's start with rule number one. It is illegal to compensate a settlement service provider for a referral. This prohibition applies whether the lender pays the broker or the broker pays the lender. However, RESPA does allow payment for work performed. The broker can thus be compensated for preparing the application because that was work performed. Making a loan is also a compensable settlement service. Any fees paid, however, should be based on and tied to work performed and not to the referral or exchange of business.
Copyright © 2005 Compliance Action. Originally appeared in Compliance Action, Vol. 10, No. 10, 9/05
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