An MLO is reviewing procedures for a case where a title company offers a gift card for each borrower referral. What is the proper handling?
Correct Answer
A) Refuse the referral fee because no service is performed
Why this is correct: The proper handling is dictated by RESPA RESPA's anti-kickback rule, implemented by 12 CFR 1024.14(b). This regulation forbids giving or accepting any fee, kickback, or thing of value for the referral of settlement service business. A gift card for referrals is a classic "thing of value" and is prohibited because the recipient performs no actual service to earn it. The correct procedure is therefore to refuse the fee. Why the other choices are wrong: "Use an informal exception and leave the required record unchanged" is wrong because there are no informal exceptions to this core anti-kickback rule. "Let production goals override the required verification, disclosure, license, or record step" is wrong because compliance obligations, especially this fundamental one, cannot be overridden by business goals. "Apply the rule only after a regulator asks specifically about TRID timing and fee disclosure" is wrong because the rule must be applied proactively; waiting for a regulator's question is non-compliant. Exam tip: In ethics questions, the compliant action is almost always to stop the improper activity immediately, not to document it or make exceptions.
Why This Is the Correct Answer
The correct response is "Refuse the referral fee because no service is performed". A thing of value for a referral is prohibited even if the borrower charge does not increase.
Why the Other Options Are Wrong
Option B: Use an informal exception and leave the required record unchanged.
Use an informal exception and leave the required record unchanged. is not correct because it bypasses the rule supported by the explanation.
Option C: Let production goals override the required verification, disclosure, license, or record step.
Let production goals override the required verification, disclosure, license, or record step. is not correct because it bypasses the rule supported by the explanation.
Option D: Apply the rule only after a regulator asks specifically about TRID timing and fee disclosure.
Apply the rule only after a regulator asks specifically about TRID timing and fee disclosure. is not correct because it bypasses the rule supported by the explanation.
Memory Technique
Gift, split, bonus, or credit tied to referrals should trigger RESPA Section 8.
Exam Tip
Gift, split, bonus, or credit tied to referrals should trigger RESPA Section 8.
Common Mistakes to Avoid
- -No borrower overcharge is not a defense to a referral-fee arrangement.
More Ethics & Fraud Questions
In a file escalation meeting, the supervisor sees facts tied to RESPA Kickbacks and Referrals. What should the file reflect?
In a closing-readiness check, a disclosure specialist sees facts tied to Appraisal Fraud Detection. What should the file reflect?
At closing, an MLO adds a single-premium credit-life policy to the loan amount even though the borrower declined it and the policy is not required for approval. Which practice is the clearest concern?
A refinance eliminates a borrower's fixed-rate loan, adds substantial fees, provides no cash or lower payment, and restarts a 30-year term. What should the MLO do before recommending it?
An applicant has verified monthly income of $5,000 and monthly obligations of $4,700 after the proposed mortgage payment. The applicant expects an undocumented raise next year. What should the MLO do?
A lender bases approval entirely on the home's high appraised value and does not verify the borrower's income or existing debts. What is the central compliance concern?
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An MLO recommends a loan with a low initial payment that will increase sharply in two years. The borrower says retirement income will be fixed and asks whether the payment can change. What is the appropriate response?
To obtain approval, an MLO changes a self-employed applicant's verified monthly income from $6,000 to $9,000 without supporting documentation. How should this conduct be characterized?
A homeowner is encouraged to refinance for the third time in 18 months. Each loan generates new points and fees, while the borrower's payment and rate do not improve. Which practice is most strongly indicated?
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