A mortgage banker pays a fee of $200 for each loan closed by brokers for referrals. What is this an example of?

In this scenario, the mortgage banker paying a fee for each loan closed by brokers for referrals illustrates a kickback arrangement. A kickback is defined as a payment made to someone in exchange for facilitating a transaction or referral, typically in a manner that is not disclosed to all parties involved.

The nature of the arrangement is significant because kickbacks often imply some form of unethical or questionable practice where the payment may not comply with relevant regulations or industry standards. In the case of real estate and mortgage lending, kickbacks can violate laws such as the Real Estate Settlement Procedures Act (RESPA), which prohibits unearned fees associated with real estate settlements.

While a referral fee can often be a legitimate payment made for a service rendered, the context implies that this relationship may not be purely transactional and could be outside the boundaries of ethical real estate practice, particularly if not all parties are informed of the payment.

Understanding this distinction is essential for anyone involved in real estate practices, highlighting the importance of transparency and ethical conduct in financial dealings within the industry.