Seeing as how the general discussion arena produced no responses, I will try my luck here.

As the title says, I am a little confused on multiple areas of referral fees. According to Section 8 of RESPA, if I am understanding it correctly, a Bank is allowed to pay a "referral fee" to a a Residential Mortgage Broker as long as he fills out the application and actually does 5 listed items to "earn" his or her fee. Disclosure must also be provided. However, where I am somewhat confused is in the following:

1. Do the same rules/restrictions apply for a licensed commerical mortgage broker?

2. Is a bank able to pay a referral fee to another professional( for example a CPA or an attorney)for providing a commercial or residential referral?(I am assuming that the CPA or attorney actually helps close the loan). If so, does RESPA apply to only residential deals or both?

3. Finally, there seems to be a growing number of company's, at least in NY, that are not licensed mortgage borkers, that are referring loans( both residential and commercial) to Banks and recieving fees for them. I was under the assumption this is not allowed, but I know of numerous Banks conducting business this way. Is this legal,and if so, what restrictions apply?

All opinions will be helpful, but please indicate where(a link would be great) you drawing your opinions from.

15 views and not one response? This doesn't bode well.

1. Any person, outside of your own employees, that you consider paying a fee to must perform the required services.

2. Not unless they perform the required services. RESPA only applies to consumer purpose loans.

3. Are they providing leads or referrals? If the bank is paying them for leads (a list of persons expressing an interest in a mortgage loan), where they are paid for each lead whether the loan is originated or not is not a violation. If they are only paying for originated loans then there is a problem.

Dan, thanks for the response, but your answers led me to more questions:

1. If RESPA only applies to consumer loans, why would a commercial mortgage broker( or attorney/CPA for that matter) referring only commercial deals have to meet the standards of the test?

2. We would not be paying for leads. That being said, the referral wouldn't just be for an introduction. This person would still play a role in helping to close the loan as per RESPA. My concern is can we pay the referral fee to a NON licensed mortgage broker?

3. Are there any state laws(NY) which would change the requirements we have to meet?

4. Any links or documentation you can provide me with?

Unless state laws prohibit it you can pay any amount of referral fees for any loan not subject to the provisions of RESPA. If they are not subject to RESPA then Sec. 8 does not apply. That's why I said RESPA only applies to consumer purpose loans.

Again, unless state law prohibits it, and as long as you are within the boundaries of Sec. 8, you can pay a referral fee to anyone you wish.

I have no idea about NY laws.

thanks Dan.

I'm trying to find a reference to provide to upper management regarding the fact that the purchase of leads lists would not be a violation of RESPA, Section 8; providing there is no condition of loan origination on any of the leads. (Dan's item #3) This would appear to be common sense, but could use the assistance of providing supporting documentation.

Purchasing a leads list would be the same as purchasing a marketing/solicitation list. Where you have to be careful is to be sure you are paying a fixed amount for each name on the list. And be sure you are purchasing a true marketing list, and not trying to pass off 7 or 8 referrals as a leads list. IOWS, if you purchase 20 names and originate 20 loans, then you may have some explaining to do. And purchasing 1 name at a time will definitely throw up red flags.

You should have criteria set for purchasing these lists similar to what you would have if you were purchasing a marketing list from a credit reporting agency or another marketing agency.

thank you for the clarification!