I've had a LO ask the following and I would appreciate your opinions. The bank financed a spec house for a builder which will be on a parade of homes. The LO would like to place a flyer in the home to describe mortgage services at the bank. Other vendors associated with the home build (pool company, roofing company, landscape company, etc...) will have cards, signs and marketing material in the home during the tour. Can we put a marketing flyer in the home without paying the builder for advertising? This is a little different scenario than putting one in a Realtor's open house, so I would appreciate any opinions. Thanks.

Setting aside whether the builder is a settlement service provider, what you described is unlikely to present a Section 8 issue. Just thinking through the transaction, you would be getting the free advertising space which would be your supposed thing of value. Who would be hoping to get the referral though? The builder from you? Doesn't follow in my opinion.

Believe the thought is getting the client referral from the builder to LO for a mortgage loan.

Right, but if the LO is getting the referral and the free advertising there is no exchange. I would more concerned if the LO wanted to pay because good luck figuring out how much that advertising is really worth.

but if the LO is getting the referral and the free advertising there is no exchange

Would you care to explain this statement? I'm not sure how the MLO receiving free advertising is not an "exchange" of something of value.

The Reg. states (paraphrased), "No person shall pay, and no person shall receive anything of value.."

Not to speak for Inspector, but what I think he is saying is that if the thing of value isn't in exchange for a referral or potential for referral (through a formal agreement or implied), then there isn't a Section 8 issue.

Thanks TMatt that's what I meant. You would need a referral going one direction and the thing of value coming back. If both items go the same way it's not an exchange.

Sorry for the confusion Dan. That's what I get for trying to respond while on a plane.

If they do not think there is a potential for a referral by placing the bank's flyer in the open-house then why are they (the bank) doing it?

The builder is furnishing potential borrowers through the open-house and providing the bank free space to advertise their mortgage products. So again how is the bank not receiving something of value and the builder is not providing something of value?

You may want to review the regulation. There is not, nor has there ever been a requirement for a formal agreement to run afoul of Sec. 8.

(b) No referral fees. No person shall give and no person shall accept any fee, kickback or other thing of value pursuant to any agreement or understanding, oral or otherwise, that business incident to or part of a settlement service involving a federally related mortgage loan shall be referred to any person. Any referral of a settlement service is not a compensable service, except as set forth in §1024.14(g)(1). A company may not pay any other company or the employees of any other company for the referral of settlement service business.

(e) Agreement or understanding. An agreement or understanding for the referral of business incident to or part of a settlement service need not be written or verbalized but may be established by a practice, pattern or course of conduct. When a thing of value is received repeatedly and is connected in any way with the volume or value of the business referred, the receipt of the thing of value is evidence that it is made pursuant to an agreement or understanding for the referral of business.

So - a bank isn't allowed to advertise anymore? Where is the referral or the defrayment of an expense of the builder?

(vi) Normal promotional and educational activities that are not conditioned on the referral of business and that do not involve the defraying of expenses that otherwise would be incurred by persons in a position to refer settlement services or business incident thereto

Are they paying for the advertising space? The builder does not have to produce advertising for potential lenders for their clients is a potential cost being defrayed.

I didn't say they couldn't advertise. All I'm saying is they are receiving something of value (free advertising space) for the anticipation of referrals.

Why would a builder ever advertise for a lender for a potential buyer. I just do not really understand the logic. The bank is not allowed to place advertising anywhere where they do not pay for the space where the advertising appears??

This is not a joint advertising venture. The bank is doing the advertising.