For a federally related mortgage loan, a title agent promises an originator 30% of each referred file's title premium, calling it payment for reviewing the title commitment. The purported review is nominal and the payment rewards referrals. How should the arrangement be treated under RESPA?
Correct Answer
D) As a prohibited referral payment and unearned fee, despite the nominal-review label
D. The nominal-review label does not legitimize a referral reward. The stem specifies both a payment for referrals and a share of a settlement charge for nominal services. An actual, necessary and distinct service is different from creating paperwork to disguise the payment. The 30% figure alone is not the legal test. Scope and exceptions: The question already establishes a covered loan, referral exchange and nominal work. Do not generalize it to every title-service payment or every percentage-based fee. Source: 1024.14(b), (c), (g)(2)–(3) — https://www.consumerfinance.gov/rules-policy/regulations/1024/14/
Why This Is the Correct Answer
D. The nominal-review label does not legitimize a referral reward. The stem specifies both a payment for referrals and a share of a settlement charge for nominal services. An actual, necessary and distinct service is different from creating paperwork to disguise the payment. The 30% figure alone is not the legal test. Scope and exceptions: The question already establishes a covered loan, referral exchange and nominal work. Do not generalize it to every title-service payment or every percentage-based fee.
Why the Other Options Are Wrong
Option A: As permissible if the parties keep a log showing one hour per file
A time log cannot replace genuine compensable work.
Option B: As prohibited only when the originator owns shares in the title agency
Ownership is not required for the stated prohibition.
Option C: As permissible whenever an invoice describes any service
The invoice label does not establish services actually performed.
Exam Tip
Evaluate the substance of the work and payment, not their labels.
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