Loan Officer Practice Exam

Per the Real Estate Settlement Procedures Act, which situation requires disclosure for an affiliated business arrangement?

1. A) A lender has ownership in a settlement service provider for a fee

2. B) A provider disguises its ownership through a corporate name

3. C) Companies refer business for a pre-arranged fee

4. D) A mortgage broker pays fees to real estate agents

The correct answer is: A) A lender has ownership in a settlement service provider for a fee

The correct answer highlights a situation where a lender has ownership in a settlement service provider for a fee, which necessitates disclosure under the Real Estate Settlement Procedures Act (RESPA). This law is designed to ensure transparency and protect consumers from potential conflicts of interest that may arise in affiliated business arrangements. When a lender has an ownership stake in a service provider, such as a title company or an attorney, it creates the potential for the lender to financially benefit from the referrals they make to that provider. To mitigate any risks associated with these conflicts, RESPA requires that consumers are made aware of these affiliations so they can make informed decisions about the services they choose. The disclosure is aimed at ensuring consumers understand the relationship between the lender and the settlement service provider, which can influence their choices and the costs of services. This requirement promotes fairness and transparency in the settlement process, protecting consumers from unfair practices. In contrast, situations where a provider disguises ownership, companies refer business for fees without disclosure, or mortgage brokers paying fees to real estate agents may not specifically trigger the same disclosure requirements mandated by RESPA. Each of these scenarios falls under different considerations of the law or may not meet the threshold for a required affiliated business arrangement disclosure.