[NMLS SAFE] 4, RESPA: Kickbacks, Referrals & Settlement Rules

Lesson four of the free Quibank NMLS SAFE course: RESPA — the Real Estate Settlement Procedures Act, Regulation X. This is the anti-kickback law, and its questions are wonderfully predictable once you know the shape of the rule. Picture this: a title company hands an originator a seventy-five dollar gift card for every closed loan referred to it. No cash, small amount — both sides say it is harmless.

RESPA says it is a kickback. Section eight is the heart of RESPA. No fee, no kickback, no thing of value in exchange for referring settlement service business. And thing of value is defined as broadly as it sounds — gifts, merchandise, trips, gift cards.

There is no small-amount exception, and disclosing it does not cure it. So on the exam: that gift card arrangement is a prohibited kickback, full stop. A thing of value was given for the referral of settlement business. The wrong answers will dangle nominal value, disclosure, and not-the-creditor excuses.

None of them work. One referral arrangement is allowed: the affiliated business arrangement, where the referring company owns a piece of the affiliate. It stays legal only under three conditions. Written disclosure of the relationship at or before the referral.

No requirement to use the affiliate. And the only money flowing back is a return on the ownership interest — never a per-referral payment. Miss any one, and it is a Section eight violation. Sellers get their own rule.

Section nine: a seller may not require the buyer to purchase title insurance from a particular company as a condition of the sale. The penalty is memorable — the seller is liable to the buyer for three times all charges made for the title insurance. Treble damages. Exam version.

The seller conditions acceptance on the buyer using the seller's chosen title company. Legal if the seller pays? Legal if the rates are competitive? No — it violates Section nine, and the seller owes the buyer three times the title charges.

Last rule for today: servicing transfers. When your loan's servicer changes, the old servicer must notify you at least fifteen days before the transfer, the new one within fifteen days after. And for sixty days from the transfer, a payment sent to the old servicer cannot be treated as late. Fifteen, fifteen, sixty.

Try it. Which combination is right? Fifteen days before from the old servicer, fifteen after from the new, and a sixty-day protection window for misdirected payments. If an answer says thirty-thirty, or a ninety-day window, it is wrong.

Recap. Section eight: no thing of value for referrals — gift cards included, no small-amount exception. Affiliated business arrangements need disclosure at referral, no required use, ownership return only. Section nine: sellers steering title insurance owe treble damages.

Servicing transfers: fifteen before, fifteen after, sixty days of late-fee protection. Next lesson: ECOA and fair lending — the nine prohibited bases and the thirty-day clock. Practice today's rules free at quibank.com/mlo. See you in lesson five.