A compliance review finds that a title company offers a gift card for each borrower referral. What should the MLO do next?
Correct Answer
B) Refuse the referral fee because no service is performed
Why this is correct: Under RESPA (the governing federal rule, accepting anything of value (a gift card) in exchange for referring business to a settlement service provider is illegal. This is true even if the borrower is not overcharged. Since the MLO performed no service for the gift card (it's purely a referral incentive), it must be refused. Why the other choices are wrong: "Ignore the TRID timing and fee disclosure issue unless the borrower complains" is wrong because this is a RESPA violation, not primarily a TRID issue, and it is illegal regardless of complaints. "Use borrower consent as a substitute for the governing mortgage rule" is wrong because RESPA's prohibition cannot be waived by the borrower. "Wait until after the license-status check to decide whether the disclosure, filing, or license issue matters" is wrong because the illegality of the referral fee is immediate and clear; waiting is non-compliant. Exam tip: In a compliance review, the first step for an illegal referral fee is to stop it immediately. The correct action is always to refuse it.
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 A: Ignore the TRID timing and fee disclosure issue unless the borrower complains.
Ignore the TRID timing and fee disclosure issue unless the borrower complains. is not correct because it bypasses the rule supported by the explanation.
Option C: Use borrower consent as a substitute for the governing mortgage rule.
Use borrower consent as a substitute for the governing mortgage rule. is not correct because it bypasses the rule supported by the explanation.
Option D: Wait until after the license-status check to decide whether the disclosure, filing, or license issue matters.
Wait until after the license-status check to decide whether the disclosure, filing, or license issue matters. 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?
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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