RESPA Referral Fees
by Andy Zavoina, BOL Guru Guru BIOS
Question: Our Internet branch has proposed a new idea, but I am worried about violating RESPA’s "referral fee" and "splitting fee" regulations. They want to recruit tax preparers (during their off season) to "team up" with our loan officers. The tax preparers would call their tax clients and offer to assist them with their mortgage needs (purchase loans, refinance loans, etc). The tax preparer would then take down personal information (i.e. income, assets, debt, etc) and give the information to their loan officer teammate. The loan officer would then do the rest of the work (i.e. final application, processing, etc). Once the loan funds, it is proposed that the tax preparer would receive 20% of the loan officer’s commission. Is this a violation of RESPA?
Answer: A letter was written by HUD in February 1995 outlining some of the tasks which must be completed to earn a fee under RESPA and avoid the problems you are concerned about. These and the requirements are recapped in this BOL Q&A. Similarly, look at this example of a HUD enforcement action.
Suffice it to say that if you pay a fee, it must be earned and cannot be just for the referral.
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