MLO Referral Fee Rules: What RESPA Section 8 Actually Prohibits

RESPA Section 8 prohibits giving or accepting any thing of value in exchange for referring business involving a federally related mortgage loan. This is one of the most frequently misunderstood compliance rules in the industry, partly because some arrangements that feel like referral fees are actually permissible under specific exemptions.

What Section 8 Actually Prohibits

Section 8(a) prohibits kickbacks -- receiving or giving anything of value in exchange for a referral. This covers cash payments, gift cards, co-marketing where one party pays far more than proportionate to their marketing benefit, and in-kind services provided in exchange for referrals. The prohibition applies to referrals between any settlement service providers, including real estate agents, MLOs, title companies, and insurance agents.

What Is Permissible

• ✦Section 8(c)(2) exempts payments for services actually rendered -- an MLO who performs real, compensated work for a real estate company can be paid for that work
• ✦Co-marketing arrangements where each party pays a fair market share of the actual costs are permissible
• ✦Employer-to-employee payments for referrals within an affiliated business arrangement (AfBA) can be structured to comply
• ✦CFPB guidance allows MLOs to pay for advertising space at fair market value without it constituting a kickback

The Affiliated Business Arrangement Exemption

RESPA allows affiliated business arrangements where a settlement service provider has an ownership interest in a related settlement service company, provided the consumer is given written disclosure of the arrangement, is told the referral is not required, and the only thing received for the referral is a return on ownership. AfBAs must be structured carefully with legal counsel -- the anti-tying provisions still apply within an AfBA.

Common Violations MLOs Make

The most common RESPA Section 8 violations by MLOs involve desk rental arrangements with real estate offices where the rent is clearly below or above market, co-marketing where the MLO pays all costs and receives brand association, and paying for leads from lead generators structured to funnel specifically from one agent. When in doubt about whether an arrangement is permissible, consult compliance counsel before entering into any arrangement that involves money or services flowing between settlement service providers.