Telephone mortgage applications and the Affiliate Business Arrangement notice

Question: We make mortgages to prime borrowers in the bank. We have an affiliate that makes loans to less-than-prime borrowers. If the applicant is not qualified for a mortgage from the bank but might be from the affiliate, we would like to refer the borrower to the affiliate. There are no fees involved in this referral, but it is an affiliated business arrangement under RESPA. Most of the referrals are made by telephone. What should we do about the Affiliated Business Arrangement notice?

Answer: You are correct in concluding that you have to give the notice. The other complication is that the notice must be signed by the customer. Getting this signature is complicated when the information is given over the telephone. You really have two choices. You could provide the notice with the application and all the other early disclosures and information you give mortgage applicants. You could present the notice with marketing language that advises the consumer that you will do everything you can to help them buy this house or get this mortgage and that may include a referral to your affiliate. The other thing you can do - and probably should do anyway - is make sure that the notice is collected at closing. In other words, whenever there is a referral, the ABA notice should be part of the loan settlement check list. This is the only time you can be certain of collecting the signature. And it is also your last opportunity.

Copyright © 2002 Compliance Action. Originally appeared in Compliance Action, Vol. 7, No. 10, 8/02