Yes, we believe you would be considered a mortgage broker in this scenario, which Regulation X defines as “a person (other than an employee of a lender) that renders origination services and serves as an intermediary between a borrower and a lender in a transaction involving a federally related mortgage loan.”

Below is a non-exhaustive list of laws and regulations with which you may need to comply as a mortgage broker:

Advertising

Regulation Z prohibits you from referring to your bank as a “counselor” in any advertisements for your for-profit mortgage broker services.

Disclosures

If you receive a consumer’s application for a closed-end credit transaction secured by real property, either your bank as the mortgage broker, or the correspondent bank as the creditor, must provide the consumer with certain disclosures required under Regulation Z, including the Loan Estimate. Your relationship with the correspondent bank would be governed by a brokerage agreement, which should address which party is responsible for sending these disclosures.

Regulation Z and Regulation X also provide that if a consumer applies for a federally related mortgage loan through a mortgage broker, “the mortgage broker shall provide [or distribute] the special information booklet,” known as “Your home loan toolkit,” which is linked in the resources below.

If you receive an application for a home equity line of credit secured by a consumer’s dwelling, you must provide the consumer with a copy of the brochure entitled “What You Should Know About Home Equity Lines of Credit,” which is included in the resources below. If you have the disclosures required in Section 1026.40(d) of Regulation Z, you must provide them at the same time as the brochure. These disclosures also may be included on the application form.

Referral Compensation

Section 8 of the Real Estate Settlement Procedures Act (RESPA) generally prohibits banks from paying “any fee, kickback or other thing of value” for referrals involving a federally related mortgage loan. Regulation X specifically prohibits payments referrals of a “settlement service,” which includes mortgage broker services.

However, Section 8 of RESPA includes a safe harbor for the “payment by a lender to its duly appointed agent or contractor for services actually performed in the origination, processing, or funding of a loan” and “a payment to any person of . . . compensation or other payment . . . for services actually performed.” Consequently, you should be able to receive payment for services actually performed — unless the payment “bears no reasonable relationship to the market value of the . . . services provided.” The Seventh Circuit Court of Appeals has employed a two-part test — originally articulated by HUD before the CFPB took over administration of RESPA — applying the safe harbor where: (1) “goods or facilities were actually furnished or services were actually performed for the compensation paid,” and (2) “the payments are reasonably related to the value of the goods, facilities, or services.”

The FHA Single Family Housing Policy Handbook reiterates the prohibition on referral fees and states that mortgagees are not permitted to advance funds to a mortgage broker as an advance of anticipated commissions on sales to be financed with an FHA-insured mortgage.

For resources related to our guidance, please see:

• Regulation X, 12 CFR 1024.2(b) (“Mortgage broker means a person (other than an employee of a lender) that renders origination services and serves as an intermediary between a borrower and a lender in a transaction involving a federally related mortgage loan, including such a person that closes the loan in its own name in a table-funded transaction.”)

• Regulation X, 12 CFR 1024.2(b) (“Federally related mortgage loan means:

(1) Any loan (other than temporary financing, such as a construction loan):

     (i) That is secured by a first or subordinate lien on residential real property,
     including a refinancing of any secured loan on residential real property, upon
     which there is either:

          (A) Located or, following settlement, will be constructed using proceeds of the
          loan, a structure or structures designed principally for occupancy of from one
          to four families (including individual units of condominiums and cooperatives
          and including any related interests, such as a share in the cooperative or right
          to occupancy of the unit); or

          (B) Located or, following settlement, will be placed using proceeds of the loan,
          a manufactured home; and

     (ii) For which one of the following paragraphs applies. The loan:

          (A) Is made in whole or in part by any lender that is either regulated by or
          whose deposits or accounts are insured by any agency of the Federal
          Government; . . .”)

• Regulation Z, Advertising, 12 CFR 1026.24(i)(6) (“The following acts or practices are prohibited in advertisements for credit secured by a dwelling:

                                                                *     *     *     *     *

(6) Misleading use of the term ‘counselor’. Using the term ‘counselor’ in an advertisement to refer to a for-profit mortgage broker or mortgage creditor, its employees, or persons working for the broker or creditor that are involved in offering, originating or selling mortgages.”)

• Regulation Z, Certain mortgage and variable-rate transactions, 12 CFR 1026.19(e)(1)(ii) (“Mortgage broker.

(A) If a mortgage broker receives a consumer's application, either the creditor or the mortgage broker shall provide a consumer with the disclosures required under paragraph (e)(1)(i) of this section in accordance with paragraph (e)(1)(iii) of this section. If the mortgage broker provides the required disclosures, the mortgage broker shall comply with all relevant requirements of this paragraph (e). The creditor shall ensure that such disclosures are provided in accordance with all requirements of this paragraph (e). Disclosures provided by a mortgage broker in accordance with the requirements of this paragraph (e) satisfy the creditor's obligation under this paragraph (e).

(B) If a mortgage broker provides any disclosure under § 1026.19(e), the mortgage broker shall also comply with the requirements of § 1026.25(c).”)

• Regulation Z, Certain mortgage and variable-rate transactions, 12 CFR 1026.19(e)(1)(i) (“In a closed-end consumer credit transaction secured by real property or a cooperative unit, other than a reverse mortgage subject to § 1026.33, the creditor shall provide the consumer with good faith estimates of the disclosures in § 1026.37.”)

• Regulation Z, Content of disclosures for certain mortgage transactions (Loan Estimate), 12 CFR 1026.37.

• Regulation Z, Certain mortgage and variable-rate transactions, 12 CFR 1026.19(g)(1) (“Except as provided in paragraphs (g)(1)(ii) and (iii) of this section, the creditor shall provide a copy of the special information booklet (required pursuant to section 5 of the Real Estate Settlement Procedures Act (12 U.S.C. 2604) to help consumers applying for federally related mortgage loans understand the nature and cost of real estate settlement services) to a consumer who applies for a consumer credit transaction secured by real property or a cooperative unit.”)

(i) The creditor shall deliver or place in the mail the special information booklet not later than three business days after the consumer's application is received. However, if the creditor denies the consumer's application before the end of the three-business-day period, the creditor need not provide the booklet. If a consumer uses a mortgage broker, the mortgage broker shall provide the special information booklet and the creditor need not do so.

(ii) In the case of a home equity line of credit subject to § 1026.40, a creditor or mortgage broker that provides the consumer with a copy of the brochure entitled ‘When Your Home is On the Line: What You Should Know About Home Equity Lines of Credit,’ or any successor brochure issued by the Bureau, is deemed to be in compliance with this section.

(iii) The creditor or mortgage broker need not provide the booklet to the consumer for a transaction, the purpose of which is not the purchase of a one-to-four family residential property, including, but not limited to, the following: (A) Refinancing transactions; (B) Closed-end loans secured by a subordinate lien; and (C) Reverse mortgages.”)

• Regulation X, Special information booklet at time of loan application, 12 CFR 1024.6(a) (“Subject to the exceptions set forth in this paragraph, the lender shall provide a copy of the special information booklet to a person from whom the lender receives, or for whom the lender prepares, a written application for a federally related mortgage loan. When two or more persons apply together for a loan, the lender is in compliance if the lender provides a copy of the booklet to one of the persons applying.

(1) The lender shall provide the special information booklet by delivering it or placing it in the mail to the applicant not later than three business days (as that term is defined in § 1024.2) after the application is received or prepared. However, if the lender denies the borrower's application for credit before the end of the three-business-day period, then the lender need not provide the booklet to the borrower. If a borrower uses a mortgage broker, the mortgage broker shall distribute the special information booklet and the lender need not do so. The intent of this provision is that the applicant receive the special information booklet at the earliest possible date.

(2) In the case of a federally related mortgage loan involving an open-ended credit plan, as defined in Regulation Z, 12 CFR 1026.2(a)(20), a lender or mortgage broker that provides the borrower with a copy of the brochure entitled “When Your Home is On the Line: What You Should Know About Home Equity Lines of Credit”, or any successor brochure issued by the Bureau, is deemed to be in compliance with this section.

(3) In the categories of transactions set forth at the end of this paragraph, the lender or mortgage broker does not have to provide the booklet to the borrower. Under the authority of section 19(a) of RESPA (12 U.S.C. 2617(a)), the Bureau may issue a revised or separate special information booklet that deals with these transactions, or the Bureau may choose to endorse the forms or booklets of other Federal agencies. In such an event, the requirements for delivery by lenders and the availability of the booklet or alternate materials for these transactions will be set forth in a Notice in the Federal Register. This paragraph shall apply to the following transactions: (i) Refinancing transactions; (ii) Closed-end loans, as defined in 12 CFR 1026.2(a)(10) of Regulation Z, when the lender takes a subordinate lien; (iii) Reverse mortgages; and (iv) Any other federally related mortgage loan whose purpose is not the purchase of a 1- to 4-family residential property.”)

• CFPB, Your Home Loan Toolkit (Special Information Booklet)

• Regulation Z, Requirements for home equity plans, 12 CFR 1026.40 (“The requirements of this section apply to open-end credit plans secured by the consumer's dwelling.

(a) Form of disclosures

     (1) General. The disclosures required by paragraph (d) of this section shall be
     made clearly and conspicuously and shall be grouped together and segregated
     from all unrelated information. The disclosures may be provided on the
     application form or on a separate form. The disclosure described in
     paragraph (d)(4)(iii), the itemization of third-party fees described in paragraph
     (d)(8), and the variable-rate information described in paragraph (d)(12) of this
     section may be provided separately from the other required disclosures.

     (2) Precedence of certain disclosures. The disclosures described in paragraph
     (d)(1) through (4)(ii) of this section shall precede the other required disclosures.

     (3) For an application that is accessed by the consumer in electronic form, the
     disclosures required under this section may be provided to the consumer in
     electronic form on or with the application.

(b) The disclosures and brochure required by paragraphs (d) and (e) of this section shall be provided at the time an application is provided to the consumer. The disclosures and the brochure may be delivered or placed in the mail not later than three business days following receipt of a consumer's application in the case of applications contained in magazines or other publications, or when the application is received by telephone or through an intermediary agent or broker.

(c) Duties of third parties. Persons other than the creditor who provide applications to consumers for home equity plans must provide the brochure required under paragraph (e) of this section at the time an application is provided. If such persons have the disclosures required under paragraph (d) of this section for a creditor's home equity plan, they also shall provide the disclosures at such time. The disclosures and the brochure may be delivered or placed in the mail not later than three business days following receipt of a consumer's application in the case of applications contained in magazines or other publications, or when the application is received by telephone or through an intermediary agent or broker.”)

(d) The creditor shall provide the following disclosures, as applicable: (1) Retention of information. . . . (2) Conditions for disclosed terms. . . .  (3) Security interest and risk to home. . . . (4) Possible actions by creditor. . . . (5) Payment terms. . . . (6) Annual percentage rate. . . . (7) Fees imposed by creditor. . . . (8) Fees imposed by third parties to open a plan. . . . (9) Negative amortization. . . . (10) Transaction requirements. . . . (11) Tax implications. . . . (12) Disclosures for variable-rate plans. . . .

(e) Brochure. The home equity brochure entitled “What You Should Know About Home Equity Lines of Credit” or a suitable substitute shall be provided.”)

• CFPB, What you should know about home equity lines of credit

• RESPA, 12 USC 2607(a) (“No person shall give and no person shall accept any fee, kickback, or thing of value pursuant to any agreement or understanding, oral or otherwise, that business incident to or a part of a real estate settlement service involving a federally related mortgage loan shall be referred to any person.”)

• Regulation X, 12 CFR 1024.14(b) (“No person shall give and no person shall accept any fee, kickback or other thing of value pursuant to any agreement or understanding, oral or otherwise, that business incident to or part of a settlement service involving a federally related mortgage loan shall be referred to any person. Any referral of a settlement service is not a compensable service, except as set forth in § 1024.14(g)(1). A company may not pay any other company or the employees of any other company for the referral of settlement service business.”)

• Regulation X, 12 CFR 1024.2(b) (“Settlement service means any service provided in connection with a prospective or actual settlement, including, but not limited to, any one or more of the following: . . . (2) Rendering of services by a mortgage broker (including counseling, taking of applications, obtaining verifications and appraisals, and other loan processing and origination services, and communicating with the borrower and lender); . . .”)

• Regulation X, 12 CFR 1024.14(g)(1)  (“Section 8 of RESPA permits: . . . (iii)  A payment by a lender to its duly appointed agent or contractor for services actually performed in the origination, processing, or funding of a loan; (iv) A payment to any person of a bona fide salary or compensation or other payment for goods or facilities actually furnished or for services actually performed; . . .”)

• Regulation X, 12 CFR 1024.14(g)(2) (“The Bureau may investigate high prices to see if they are the result of a referral fee or a split of a fee. If the payment of a thing of value bears no reasonable relationship to the market value of the goods or services provided, then the excess is not for services or goods actually performed or provided. These facts may be used as evidence of a violation of section 8 and may serve as a basis for a RESPA investigation. High prices standing alone are not proof of a RESPA violation. The value of a referral (i.e., the value of any additional business obtained thereby) is not to be taken into account in determining whether the payment exceeds the reasonable value of such goods, facilities or services. The fact that the transfer of the thing of value does not result in an increase in any charge made by the person giving the thing of value is irrelevant in determining whether the act is prohibited.”)

• Howland v. First Am. Title Ins. Co., 672 F.3d 525, 531 (7th Cir. 2012) (“Based on its reading of RESPA Section 8 and its own regulations, HUD announced a two-part test to determine whether a fee from a lender to a mortgage broker violates RESPA's kickback provisions: (1) ‘whether goods or facilities were actually furnished or services were actually performed for the compensation paid,’ and (2) ‘whether the payments are reasonably related to the value’ of the goods, facilities, or services.”)

• FHA Single Family Housing Policy Handbook, page 52 (June 29, 2022) (“The Mortgagee, or any of the Mortgagee’s employees, must not pay or receive, or permit any other party involved in an FHA-insured mortgage transaction to pay or receive, any fee, kickback, compensation or thing of value to any person or Entity in connection with an FHA-insured mortgage transaction, except for services actually performed and permitted by HUD. The Mortgagee must not pay a referral fee to any person or Entity. The Mortgagee is not permitted to: . . . advance funds to a real estate agent, real estate broker, mortgage broker, or packager as an advance of anticipated commissions on sales to be financed with an FHA-insured Mortgage to be provided by the Mortgagee; . . .”)