Chapter 24 — Key Takeaways

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

The one sentence

RESPA is about who pays you. TILA is about what you tell the borrower it costs.

RESPA governs the market around the loan — settlement services and who is paid for sending business to whom. TILA governs the price of the loan — the cost of credit and its disclosure. They meet at TRID (Chapter 22), which is a rule implementing two statutes, not a statute itself.

The core claims

1. RESPA does not prohibit referrals. It prohibits paying for them. A referral earned by performance, with nothing of value moving in either direction, is the most protected and most valuable arrangement in your business.

2. Section 8(a) has three elements: a thing of value, an agreement or understanding, and a referral. Knock out any one and there is no violation. All three are read broadly — an agreement may be established by a practice, pattern, or course of conduct (Reg X § 1024.14(e)), and "thing of value" reaches space, staff, discounts, free services, exposure, trips, and forgiven expenses.

3. Section 8(b) is a different offense. It bars splitting a charge other than for services actually performed. No referral required. A fee for nominal or duplicative work is an unearned fee.

4. Section 8(c) is the door everything lawful walks through: payment for goods actually furnished or services actually performed, at reasonable market value. And § 1024.14(c) forbids setting that price by reference to the referrals — which is exactly how a commercial person naturally reasons.

5. It does not matter that the borrower's price did not go up (§ 1024.14(g)(2)), and Section 8 reaches you personally. Individuals have been named in real enforcement actions.

6. An affiliated business arrangement needs all three conditions: disclosure at or before the referral, no required use, and a return limited to a return on ownership interest. Distributions that track referral volume are referral fees with a K-1 attached.

7. Marketing services agreements are lawful and dangerous. CFPB Bulletin 2015-05 was rescinded in October 2020 and replaced with RESPA Section 8 FAQs saying MSAs are not per se illegal. That restored the statutory standard; it did not relax it. Work from current guidance.

8. Section 9 is narrow. It restricts the seller, as a condition of sale, regarding title insurance purchased by the buyer. The remedy is three times all charges for the title insurance, running to the buyer.

9. Most closing costs are not in the APR. Regulation Z § 1026.4(c)(7) excludes bona fide, reasonable real-estate-related fees — appraisal, credit report, title, survey, pest, flood determination, document preparation, escrow deposits. Origination, points, interest, and mortgage insurance (§ 1026.4(b)(5)) are in.

10. HOEPA high-cost and HPML are different tests with different consequences. High-cost has three triggers and restricts loan terms (plus mandatory HUD-approved counseling and enhanced assignee liability). HPML has one trigger and adds process (escrow, interior-inspection appraisal). Both are measured against APOR for a comparable transaction as of the date the rate is set.

11. The CFPB removed the 43% DTI limit from General QM and replaced it with a price-based test keyed to APR relative to APOR. DTI must still be considered and verified. Investor guidelines and lender overlays remain the constraint that actually decides your file.

12. A QM that is not higher-priced gets a safe harbor; a higher-priced QM gets only a rebuttable presumption, rebutted by showing insufficient residual income at consummation.

13. Regulation N (the MAP Rule) reaches any commercial communication — posts, texts, voicemails, flyers — and prohibits material misrepresentation express or implied, with a 24-month recordkeeping requirement.

The rules of thumb

The Section 8 field test — four questions, before you agree to anything.

1. Would I still pay this if they never sent me another file?
2. Does the price change when the referrals change?
3. Can I prove market value from something other than my own opinion — obtained before the price was set?
4. Can I prove the service was actually delivered?

And the one that decides everything: if the referrals stopped tomorrow, would you keep paying?

The finance-charge test. Would the borrower pay this in a comparable cash purchase of the same house? If yes, it is generally not a finance charge. If they pay it because they are borrowing, it generally is. Then check the § 1026.4(c)(7) exclusion list, which sweeps most third-party settlement charges out even though the creditor required them.

HOEPA restricts what the loan may SAY. HPML restricts what the lender must DO.

The arithmetic, on the Linden Street file

The referral relationship on this file: four prior closings, nothing of value in either direction, no agreement. One element out of three. No violation, nothing to disclose — and the most productive asset in the loan officer's book.

Key terms

RESPA · Regulation X · Section 8(a), 8(b), 8(c) · thing of value · agreement or understanding · referral · unearned fee · affiliated business arrangement (AfBA) · required use · return on ownership interest · marketing services agreement (MSA) · Section 9 · TILA · Regulation Z · finance charge · amount financed · APR · HOEPA · high-cost mortgage · higher-priced mortgage loan (HPML) · average prime offer rate (APOR) · Ability-to-Repay (ATR) · Qualified Mortgage (QM) · safe harbor · rebuttable presumption · residual income · MAP Rule · Regulation N · triggering terms

What you should be able to do Monday morning

• Take the co-marketing call without panicking or over-promising. Say yes to your proportionate share of the actual cost, get the invoice, document why the number is right — before you pay.
• Classify a fee sheet. Given twelve closing costs and three prepaids, mark the finance charges, compute prepaid finance charges and amount financed, and reconcile to the disclosed APR.
• Answer "why is the APR higher than my rate?" in twenty seconds by naming the four things in it and the things that are not.
• Recognize an HPML before the disclosure does — look up APOR for a comparable transaction as of the lock date, add the applicable spread, compare to your APR — and know that it means escrow and an interior-inspection appraisal, not a problem.
• Say what replaced the 43% rule without printing a threshold, and then look the threshold up.
• Post nothing on social media containing a payment, a rate without an APR, or the words "government backed."
• Ask, of every arrangement anyone offers you: if the referrals stopped tomorrow, would I keep paying?