A brokerage owns 40% of a title agency and refers borrowers to it while taking a share of its profits. Under what conditions can the affiliated-business arrangement qualify for RESPA's ownership-return exemption?
Correct Answer
A) Permitted with disclosure, no required use, and a return on ownership
A. Disclosure, no required use and a qualifying ownership return are the relevant conditions. Ownership alone does not make every affiliate referral unlawful. For this brokerage referral, disclose the relationship and estimated charges at referral, preserve the borrower’s choice, and distinguish ownership returns from referral payments. Scope and exceptions: Merely calling a payment a “profit share” does not establish a qualifying ownership return. The payment arrangement must meet the actual rule. Source: 12 CFR 1024.15(b)(1)–(3) — https://www.consumerfinance.gov/rules-policy/regulations/1024/15/
Why This Is the Correct Answer
A. Disclosure, no required use and a qualifying ownership return are the relevant conditions. Ownership alone does not make every affiliate referral unlawful. For this brokerage referral, disclose the relationship and estimated charges at referral, preserve the borrower’s choice, and distinguish ownership returns from referral payments. Scope and exceptions: Merely calling a payment a “profit share” does not establish a qualifying ownership return. The payment arrangement must meet the actual rule.
Why the Other Options Are Wrong
Option B: Prohibited outright, because any ownership creates a clear referral conflict
An ownership relationship is not an automatic prohibition.
Option C: Permitted where the borrower signs a waiver of the 3 disclosures
A borrower waiver is not a substitute for satisfying the conditions.
Option D: Permitted where the brokerage discloses the 40% stake at closing
Disclosing only the stake at closing is neither timely nor complete for this brokerage referral.
Exam Tip
An affiliated relationship requires safeguards; disclosure alone is not enough.
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