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Banking Interpretations

Gen. Regs. of BB Part 38

January 28, 2005

Re: Referral Fees

Dear [ ]:

Your December 22, 2004 letter to Kenneth Bielemeier, Deputy Superintendent, New York State Banking Department (the "Department"), has been referred to me for response. In your letter you asked under what circumstances can a mortgage broker: (i) pay a referral fee; or (ii) divide a fee with another person.

As stated in the Department's letter to mortgage bankers and brokers, dated January 23, 1996, "[t]he paying or receiving of a fee, or other thing of value, for the mere referral of a loan or other settlement service is generally prohibited by Section 8 of the Real Estate Settlement procedures Act ("RESPA"), 12 USC 2607." In other words, it is illegal for mortgage brokers to pay referral fees.

In connection with your second question, Part 38.3 (a)(1) of the Superintendent's Regulations requires that:

"Prior to taking an application or collecting an application fee, credit report fee or property appraisal fee, every mortgage broker shall disclose to the applicant in writing or via electronic media: ... (x) if applicable, the fact that fees are being divided between more than one mortgage broker and/or mortgage banker and/or exempt organization acting as a mortgage broker and the dollar amount or the percentage, o[r] if not known, a good faith estimate thereof, of the fee to be received by each mortgage broker, mortgage banker or exempt organization."

Thus, your client would be able to share fees with, and only with, another mortgage broker and/or mortgage banker and/or exempt organization acting as a mortgage broker, provided that, the necessary disclosures required by the above-recited regulation are made.

I trust the foregoing is responsive to your inquiry.

Very truly yours,

Harry C. Goberdhan
Assistant Counsel

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