Mortgage Brokers Paying Out Finders And Referral Fees - Q3 2000

By the Division of Banks

Brokers licensed in the Commonwealth asks whether a finder or referral fees can be paid to a financial planner who refers a loan to the mortgage broker or lender but does not take the actual loan application from the customer. Mass. Gen. Laws chapter 255E, section 2 requires that any person " who for compensation or gain" places, assists in placement or finds mortgage loans on residential property for others be licensed as a mortgage broker unless otherwise exempted. Financial planners are not exempt from being licensed under the provision of said section 2, and it has been the consistent position of the Division that any person receiving referral fees for residential mortgage transactions five or more times in a consecutive twelve month period must be licensed as a mortgage broker under said chapter 255E.

After being licensed as a mortgage broker, an individual must provide certain disclosures to the customers pursuant to regulations issued by the Office of Attorney General relative to compensation received in each mortgage transaction. Under the federal Real Estate Settlement Procedure Act ("RESPA"), all fees paid by a borrower in a mortgage transaction must be included in the HUD-1 settlement statement at the closing of the mortgage loan. In addition a mortgage broker's fee is part of the finance charge for truth-in-lending purposes and must be properly disclosed under regulation 209 CMR 32.00.