Management is encouraging a lender to host open houses with real estate agents in order to get referrals. Other suggestions included bringing treats to real estate agents and taking them to lunch. The idea of a raffle at the open house was also brought up.

To me, this a violation RESPA 1024.14 Prohibition against kickbacks and unearned fees.

Am I correct?

From an old Kirchman publication:

RESPA makes it a felony ($10,000 fine and one year in prison) to give or accept any fee, kickback, or thing of value pursuant to any agreement or understanding for the referral of a real-estate settlement service or to receive any portion of the charge for a settlement service other than for services actually performed. The basic rule is that the referral of a settlement service is not a compensable act. If a referral fee or compensation of any kind is given for the referral of a settlement service, both the payor and the payee have violated the law (unless the payment falls within one of the exceptions). Thus, a lender may not pay a realtor for referring mortgage customers to it and a title company may not pay an employee of a lender (or the lender) for referring title business to it. At one time, it was unclear whether the making of a loan was a settlement service in and of itself. In other words, could a mortgage broker charge a lender a fee for referring a loan? In 1992, the definition of settlement service was expanded to clearly include the origination and funding of a loan. Thus, if a borrower goes to a mortgage broker, the broker may charge the borrower a fee for origination services and for finding a lender, but the broker may not be compensated by the lender for the referral. A lender may compensate a broker for the fair value of services the broker actually has performed.

The term ―thing of value" is defined very broadly. It includes not only direct payments (money, merchandise, or other property), but also indirect payments such as free or reduced-fee services, belowmarket- rate interest on loans, or the payment of expenses.

Real Estate Settlement Procedures Act The Act, not RESPA Reg. X.

I'm not sure how your management can claim they are not providing a thing of value in anticipation of referrals.

FWIW, I agree. You cannot give or receive anything of value for a referral for home loans. Pretty clear.

Looking at this from a different angle, you will have to make a convincing argument that the treats, lunches, raffle prizes, etc. are actually worthless (otherwise, they have value.) Regardless of your lenders' stories that "everyone else does it", Section 8 of RESPA is not a trifling matter. Penalties include prison time.

I know of a few realtors/lenders who are raffling off a chance for a car or trip. I'm even told lawyers have looked into it and that they are in the clear. I suppose i sort of agree in that a raffle ticket is not a thing of value...is that how they get around it?

If the ticket is worthless, then by extension, so is the raffle. Following that logic, if it's totally worthless, then why would any sane person purchase a car and give it away to support the raffle?

If you refer to FIL-103-99 [November 17, 1999 – Potential Violations of Section 8 of the Real Estate Settlement Procedures Act], it states

"Thing of value," also broadly defined, includes all types of compensation such as monies, discounts, salaries, commissions, fees, and preferential bank rates. 4 HUD has described the opportunity to win a prize as a thing of value. For example, a bank cannot enter real estate agents in a pool to win a trip to Hawaii if a certain number of customers are referred to the bank for a mortgage loan. 5

https://www.fdic.gov/news/news/financial/1999/fil99103a.html

I agree with the others.

As an " the opportunity to participate in a money-making program" is included in the definition of a thing of value, I can't imagine how the "opportunity to participate in a raffle" would not also be included. In addition, see the FIL David referenced.

Again, just because someone else is doing it doesn't make it right. RESPA Section 8 penalties are a BIG DEAL and should not be taken lightly. There have been plenty of consent orders and fines over the years relating to unearned fees and kickbacks in case your management team wants some examples.

Do you want to make a lot of enemies, but be the only lender left? Ask HUD to opine.

Fixed, HUD no longer has enforcement or interpretation authority under RESPA

It's always been on my highest risk list because it carries criminal penalties that can include prison time. Any law or regulation with unacceptable penalties must be placed on your zero-tolerance list. No banking business practice or "opportunity" is important enough for a bank to allow it's officers and employees to take the risk of incarceration.

Our mortgage group annually participates in an event hosted by a realty company (a local title company also attends). The realty company buys tickets to a local sporting event for shared customers between them and our mortgage group. These customers are those that have closed loans with us both during the year. While the realty company foots the bill upfront, our mortgage group reimburses them a portion of the overall bill for the night. Do you view this as a potential RESPA section 8 concern?

Do you view this as a potential RESPA section 8 concern?

There is no potential Sec. 8 violation. It is an out-right violation of Sec. 8 by the reality co., title co. and bank.

My thoughts exactly. I appreciate the quick reply, Dan.

Could you explain this a little further, please. If the title company, the bank, and the realty company pitch in equally and buy tickets for customers that were common to all three companies would there be a violation? (I realize this is not the exact scenario.)

I thought lenders - or service providers could give gifts to their customers. Is the problem with multiple service providers pitching in on the same gift?

This is not, IMO, as simple as the bank giving the customer a pair of tickets at closing.

The outing is hosted by the reality co. and the reality co. foots the bill. The bank later reimburses the reality co. for a portion of their expenses. So the bank is defraying costs for the reality co. in anticipation for future referrals due to them reimbursing the reality co. The bank is not giving their customers anything.

I also think you would be hard pressed to fit the "outing" into the following exemption:

(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; or

If this was something that had to be done for whatever reason, I'd see if it could fit under the marketing exception. This link provides some info and I'm sure you can find more on marketing and sharing costs. But if you maintain the funding is for the benefit of the past customers, being past customers, while they could be future customers I don't see a lot of advertising to buyers who just got out of the market. Yes they could refer friends, but what is the bank really paying for here, that is what you want to answer. I think Dan is trying to drive that point home.

https://www.alta.org/news/news.cfm?...Afoul-of-RESPAs-Anti-Kickback-Provisions