In a mortgage origination file, a title company offers a gift card for each borrower referral. Which action should be taken?
Correct Answer
D) Refuse the referral fee because no service is performed
Why this is correct: The correct action is governed by RESPA's anti-kickback provision in 12 CFR 1024.14(b). This law prohibits giving or accepting any fee, kickback, or thing of value (like a gift card) in exchange for a referral of settlement service business. The prohibition is absolute and is not contingent on whether the borrower is harmed or pays more. Since the gift card is offered specifically for a referral where no actual service is performed by the recipient, it must be refused. Why the other choices are wrong: "Continue the activity because the borrower appears willing to proceed" is wrong because a borrower's willingness does not legalize a RESPA violation. "Ignore the consumer-protection issue unless the borrower complains" is wrong because the legal violation exists independently of any complaint. "Use the TRID timing standard to decide the RESPA kickbacks and referral fees issue before confirming the trigger facts" is wrong because TRID timing rules are unrelated to the substantive prohibition on referral fees. Exam tip: RESPA's kickback rule is a strict liability provision. If it's a payment for a referral, it's illegal—full stop.
Why This Is the Correct Answer
The correct response is "Refuse the referral fee because no service is performed" because Lines 244-249; 12 CFR 1024.14(b).
Why the Other Options Are Wrong
Option A: Continue the activity because the borrower appears willing to proceed.
Continue the activity because the borrower appears willing to proceed. is not correct because it does not apply the rule tested by this file scenario.
Option B: Ignore the consumer-protection issue unless the borrower complains.
Ignore the consumer-protection issue unless the borrower complains. is not correct because it does not apply the rule tested by this file scenario.
Option C: Use the TRID timing standard to decide the RESPA kickbacks and referral fees issue before confirming the trigger facts.
This distractor shifts the issue to a different trigger, product, or timing rule instead of applying the rule tested in the stem.
Memory Technique
conflicts of interest: identify the rule being tested, then choose the action that documents or applies that rule before the file moves forward.
Exam Tip
Match the file facts to conflicts of interest; do not choose an exception or shortcut that skips the required rule.
Common Mistakes to Avoid
- -Choosing an internal exception instead of the governing rule
- -Treating preliminary or informal facts as a substitute for required documentation
- -Answering from a familiar but unrelated mortgage topic
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?
A borrower agrees to a mortgage but declines an optional home-warranty plan. The final loan documents nevertheless finance a $2,400 warranty premium. What should the MLO do?
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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