Chapter 24 — Exercises

RESPA and TILA: Disclosure, Kickbacks, and the Rules That Shape Every Referral

Work these with the regulation open. Where an exercise asks for a threshold that changes, the correct answer is the structure plus where to look it up — an exercise that tempts you to print a number from memory is testing whether you will.

Items marked † have worked solutions in the answers appendix.

A. Recall and definitions

1. State, in one sentence each, what RESPA regulates and what TILA regulates. Then name the rule where the two meet on a single set of forms, and say which chapter of this book owns it.

2. Write out the three elements of a RESPA Section 8(a) violation. For each element, name the Regulation X provision that defines or expands it, and state in one sentence how that provision makes the element broader than its plain words suggest.

3. † Section 8(b) prohibits something Section 8(a) does not reach. Describe a fact pattern that violates 8(b) but not 8(a), and one that violates 8(a) but not 8(b).

4. List five items from Regulation X § 1024.14(d)'s definition of "thing of value" that are not money. For each, describe a modern arrangement in which it would move between a lender and a referral source.

5. State the three conditions that must all be satisfied for an affiliated business arrangement to be exempt from Section 8, and the ownership-interest threshold in the statutory definition. Then name the three types of provider whose use a referring party may require notwithstanding the no-required-use condition.

6. † Section 9 of RESPA is narrower than most originators believe. List four things it does not prohibit, and state the remedy it provides and to whom that remedy runs.

7. Define "finance charge" using Regulation Z § 1026.4(a)'s language, then explain what work each of these phrases does: directly or indirectly by the consumer; directly or indirectly by the creditor; incident to or a condition of the extension of credit.

B. Is this a Section 8 violation?

For each scenario, state your conclusion — violation, not a violation, or arguable, and here is what decides it — and identify which of the three elements is doing the work. Several of these are genuinely arguable; the ones that are, are the point of the set. Say what additional fact you would need before you would sign off.

8. Two versions of the same expense. (a) A loan officer buys lunch for a buyer's agent — \$34 — to walk through the guidelines on a renovation program the agent has a client for. (b) The same loan officer caters that brokerage's Tuesday sales meeting every week for a year, at about \$180 a week. Same category of expense, different answers. Explain what distinguishes them, and name the two tests from the CFPB's promotional-activity guidance that do the work.

9. † A loan officer rents a desk in a real estate brokerage for \$800 a month. An independent broker's opinion establishes that comparable space in the building rents to unaffiliated tenants for \$775 to \$850. The loan officer uses the desk about six hours a week. The lease also entitles the loan officer to be introduced at the Tuesday sales meeting, to be listed in the office directory, and to be the only lender permitted to rent space in that office.

10. A title company hosts a free three-hour continuing-education class for real estate agents at its own office, taught by a licensed instructor it employs. Agents who attend receive required CE credit at no cost.

11. † Two versions of the same postcard. The printer's invoice for 1,500 pieces including postage is \$1,180, and the loan officer pays \$590 in both versions. (a) The loan officer's photo, NMLS number, and a short paragraph occupy the entire back of the card. (b) The loan officer's material occupies a strip across the bottom of the back, roughly one-eighth of the total printed area. State the analysis for each and the single principle that separates them.

12. Two gifts. (a) A loan officer buys their borrowers a \$250 restaurant gift certificate and hands it to them at the signing table. (b) The same loan officer mails a \$250 gift certificate to the buyer's agent the following week with a thank-you note. Explain why the analysis differs, and name one edge case where a gift to a borrower would still be a Section 8 problem.

13. † Two lead vendors, same product. (a) "Exclusive, credit-qualified purchase introductions" at \$75 per introduction, plus \$400 per introduction that results in a funded loan. (b) The same introductions from a marketing company with no settlement services business, at a flat \$140 each whether or not they close. Which pricing structure is the problem, and why is it the brightest flag in the chapter?

14. † A national builder offers buyers a \$7,500 closing-cost credit, available only if the buyer finances through the builder's affiliated mortgage company. The affiliated business arrangement is disclosed at the time of the referral on the Appendix D form.

15. An appraiser who receives assignments from a lender's panel sends the lender's loan officers a box of pastries every month. Nobody has ever discussed it. (Note carefully which direction the referral runs in this one.)

16. † A loan officer pays a financial advisor \$500 for every client the advisor sends who closes a mortgage. The advisor is not a settlement service provider and provides no service to the lender.

17. A loan officer takes a top referring agent and the agent's spouse to a professional basketball game. Tickets and parking: about \$420. It is the third time this year. Nothing has ever been discussed about referrals.

18. Two versions of a "preferred lender" program. In both, \$2,000 a month buys a logo on the brokerage's website, an insert in the client welcome packet, and a page in the listing presentation binder, and an independent media valuation obtained before pricing supports \$1,850 to \$2,300 a month. (a) The brokerage sells four slots to four different lenders. (b) One slot exists, it goes to the lender that agrees to the highest monthly figure, and the managing broker tells the sales meeting that "our preferred lender should be getting our business." Analyze both.

C. Affiliated business arrangements

19. † Write the disclosure. Your employer has just acquired a majority interest in a title agency. Draft the affiliated business arrangement disclosure statement you would deliver, modeled on Appendix D to Regulation X. It must include: the nature of the relationship and the ownership interest; an estimated charge or range of charges for each service the affiliate provides; the no-required-use statement; and a receipt acknowledgment. Then write a separate 150-word memo to your branch manager identifying when it must be delivered, who must deliver it on a purchase where the referral comes from the real estate agent rather than from you, and the two conditions the disclosure does not satisfy.

20. A title agency is owned 40% by a real estate brokerage, 40% by a law firm, and 20% by a mortgage lender. Last year the brokerage referred 62% of the agency's files, the law firm 11%, and the lender 27%. Profits were distributed 62/11/27. Analyze under Regulation X § 1024.15, identify which of the three conditions fails, and explain why the corporate form does not save it.

21. Apply the sham-entity factors from §24.4 to the following: a title agency capitalized at \$5,000, with no employees, operating from a desk in the parent brokerage's office, that contracts all title searching and policy issuance to an unaffiliated underwriter for a fee equal to 80% of the premium, receives 100% of its business from its owners, and distributes the remaining 20% to its owners quarterly. Which factors cut which way? Is any single factor dispositive?

D. Finance charge classification

Use the Linden Street fee sheet. For each item, state finance charge or not a finance charge, cite the Regulation Z provision, and — where the answer is conditional — state the condition.

22. † Classify all fifteen charges and compute two totals. Closing costs: origination \$3,657.50 · discount points \$1,828.75 · appraisal \$650.00 · credit report \$85.00 · flood certification \$14.00 · tax service \$78.00 · lender's title policy \$1,150.00 · settlement fee \$595.00 · recording \$212.00 · owner's title policy \$875.00 · survey \$450.00 · pest inspection \$125.00. Prepaids: prepaid interest \$531.09 · twelve months of homeowners insurance \$1,560.00 · escrow deposit \$2,315.00. Then compute the file's prepaid finance charges and its amount financed, showing every step, and prove that the closing-cost column foots to \$9,720.25.

23. The Linden Street borrowers pay monthly mortgage insurance of \$176.78 for 137 months. Is that a finance charge? Cite the provision. Then explain, in the words you would use with a borrower, why their homeowners insurance is treated differently.

24. † Build the file's total finance charge from its three components and prove your answer using the identity amount financed + finance charge = total of payments. The frozen figures you may use: total interest over 360 payments \$477,348.40; monthly P&I \$2,341.94; monthly MI \$176.78 for 137 months.

25. The note rate is 6.625% and the APR is 7.253%. A borrower asks why. Write the answer you would actually say out loud, in under sixty seconds, naming exactly what is in the APR and what is not. Then state the APR's central limitation for a borrower who expects to sell in five years.

26. A processor classifies the \$78.00 tax service fee as excluded, reasoning that it is a third-party charge like the flood certification. Identify the error, name the two things that would have to be true for an exclusion to apply, and describe the downstream consequences of the misclassification for the disclosure and the calendar.

E. High-cost, higher-priced, ATR, and QM

27. † A first-lien purchase loan on a principal dwelling has an APR of 8.90%. APOR for a comparable transaction on the date the rate was set was 6.35%. Compute the spread. Then build a two-column comparison of HOEPA high-cost mortgages and higher-priced mortgage loans covering the number and kind of triggers, the benchmark and the date it is measured, the consequences, and whether loan terms are restricted — and state what you would need to look up, and where, to classify this loan. Do not print any threshold.

28. Name the eight factors a creditor must consider under the Ability-to-Repay rule. Then identify the one whose exclusion clause is the direct answer to equity stripping, and quote the clause.

29. † A colleague says: "General QM has no DTI requirement anymore, so we can put anybody through at any ratio." Write a five-sentence correction. It must state what replaced the 43% limit, what the General QM definition still requires with respect to DTI, and the independent constraint that will actually decide the file.

30. Explain the difference between a safe harbor and a rebuttable presumption under the QM rule, state exactly what determines which one a given QM receives, and describe what a consumer must show to rebut. Then explain why an Ability-to-Repay claim can surface in year eight of a loan when a disclosure claim cannot.

F. Advertising

31. Regulation Z § 1026.24 names four triggering terms. List them, then list the disclosures an advertisement must add once one appears. Write two advertisements for the same loan — one that triggers and one that does not — where the non-triggering version is still commercially useful.

32. † Find the violations. A loan officer posts: "🔥 6.25% — \$1,847/mo — call me today. FHA approved lender, government backed. Nobody beats our rates." Identify every violation you can find under Regulation Z § 1026.24, under Regulation N, and under typical state licensing advertising requirements. Then rewrite the post so it is compliant, still specific, and still worth reading.

G. NMLS-style exam items

33. Under RESPA, a payment to a person in a position to refer settlement business is permitted if it is: (A) less than \$100 · (B) disclosed to the borrower in writing · (C) for goods actually furnished or services actually performed at reasonable market value · (D) made from the loan officer's own commission rather than the company's funds.

34. A seller conditions acceptance of an offer on the buyer purchasing title insurance from a named company. The buyer's remedy is: (A) rescission of the purchase contract · (B) three times all charges made for the title insurance · (C) actual damages only · (D) a civil money penalty payable to the CFPB.

35. Mandatory homeownership counseling from a HUD-approved counselor is a requirement of: (A) every higher-priced mortgage loan · (B) every Qualified Mortgage · (C) high-cost mortgages under HOEPA · (D) every FHA loan.

36. A first-lien higher-priced mortgage loan generally requires: (A) a prohibition on balloon payments · (B) an escrow account for taxes and mortgage-related insurance · (C) homeownership counseling · (D) a maximum 43% debt-to-income ratio.

H. Judgment

37. Your top referring agent — six closings this year — says another lender has offered to pay half of the agent's \$1,400 monthly listing-portal advertising in exchange for being the agent's preferred lender, and asks whether you will match it. Write what you say. Then write what you do next, including the thing you would do even though it will not win this particular agent back.

38. † Your branch manager forwards a marketing services agreement for you to sign with a brokerage you already receive referrals from. The fee is \$1,500 a month. Attached is a fair-market-value opinion dated three weeks after the agreement's effective date. The scope of services reads, in full: "Marketing and promotional services as reasonably requested." List every problem you can identify, draft the three questions you send back before signing, and state the one answer that would make you decline regardless of what compliance says.

39. A borrower on a purchase file tells you the buyer's agent said, "Just use the title company on the contract — it's easier." Write the three things you say, in order, and name the document you check before you say the third one.

I. Loan File extension

40. † Build the compliance page for the Linden Street file. Produce four deliverables in Appendix C's workbook:

1. The fee sheet, reclassified. Reproduce all twelve closing costs and all three prepaids with a finance-charge column and a Regulation Z citation column. Total the finance charges and the non-finance charges separately, then reconcile to \$6,095.34 in prepaid finance charges and a \$359,654.66 amount financed. Every column must foot.
2. The referral map. List every person or entity connected to this file who is in a position to refer settlement service business — the buyer's agent, the title company, the appraiser, the surveyor, the pest inspector, the closing agent, the insurance agent. For each, state what has moved between them and you, in either direction. Where the answer is "nothing," write "nothing."
3. The forward-looking exposure memo. One page. Name the five arrangements from §24.2 through §24.5 that you are most likely to be offered by this agent or this brokerage in the next twelve months, and write, for each, the sentence you will say and the document you will create before any money moves.
4. The two-paragraph QM note. Paragraph one: why the day-44 furniture debt — which took back-end from 42.66% to 48.48% — was a Qualified Mortgage problem under the old General QM definition. Paragraph two: why it remained a serious problem under the current definition, for two reasons that have nothing to do with a DTI ceiling.