Some credit repair companies obtain their customers by paying “referral fees” to loan officers who have turned those customers down for a loan.
By necessity, a credit repair company passes those fees on to their credit repair clients. That’s how business works.
That creates a potential pitfall for a referring loan officer. They, and by extension, the company that they work for are receiving “income” for that referral. That is why the credit repair company that paid them a referral fee last year probably sent them an IRS Form 1099 for that payment this past January.
Does the Real Estate Settlement Procedures Act, (Title 24 CFR section 3500 et seq.) require that you disclose that income to your mortgage loan customer, should the credit repair company properly return them to you ready for a mortgage?
Think about it…
If a loan officer is sending someone to a specific credit repair firm, and:
1. Telling them that they “need” to have a higher credit score in order to qualify for a mortgage loan, and
2. The cost of that credit repair service is higher for them because of the fact that the loan officer and or his company were paid a “referral” fee
-Is that cost fully and accurately disclosed to the customer in the loan settlement documents?
In effect, isn’t the customer paying more to obtain a loan than they would have had the loan officer not received a referral fee?
In the interest of “full disclosure”, should that referral fee be reflected on the Settlement Statement ( HUD-1)?