The Ability To Offer Real Estate Brokers Non Cash "Points" For Referrals - Q3 2000

By the Division of Banks

A mortgage company is looking to establish a promotional program in which it gives "points" to be used towards vacations and products, but not cash, to real estate brokers who refer mortgage customers to the company.

Under said chapter 255E, a mortgage broker is defined as "any person who for compensation or gain, or in the expectation of compensation or gain, directly or indirectly, negotiates, places, assists in placement, finds or offers to negotiate place, assist in placement or find mortgage loans on residential property for others." By referring customers to the mortgage company, real estate brokers would clearly be assisting in the placement on mortgage loans. Although, the company would not be paying cash referral fees, it is the position of the Division that the giving of "points" to be used for vacations and products is "compensation or gain" within the meaning of chapter 255E. Therefore, in order to accept this compensation or gain, the real estate broker would have to be licensed as a mortgage broker by the Division. Although real estate brokers are exempt from licensing under chapter 255E, this exemption is only applicable if the real estate broker is not compensated as a mortgage broker in the same transaction as he/she is compensated as a real estate broker.

The Division has reviewed Mass. Gen. Laws chapter 255E and its implementing regulation, 209 CMR 42.00 et.seq, and has determined that such referral fee programs are not prohibited for mortgage lenders in the Commonwealth. The Division recommends that the mortgage company review the requirements of the Real Estate Settlement Procedure Act("RESPA") in order to determine the method of disclosure of any referral fees under that federal act and its implementing regulations under Housing and Urban Development, a federal agency.