California Real Estate Practice Exam

If a mortgage banker pays a fee to brokers and salespeople for referring business, this practice is known as:

1. An incentive

2. A rebate

3. A discount point

4. A kickback and is illegal

The correct answer is: A kickback and is illegal

The practice described, where a mortgage banker pays a fee to brokers and salespeople for referring business, is characterized as a kickback. In the context of real estate and mortgage lending, a kickback refers to any payment made in exchange for business referrals, which can create conflicts of interest and lead to unfair practices. Such transactions are illegal under the Real Estate Settlement Procedures Act (RESPA), which aims to protect consumers from unscrupulous practices in the real estate settlement process. In California and many other jurisdictions, kickbacks can undermine the integrity of the lending process, as they may incentivize agents to prioritize their financial gain over the best interests of their clients. As such, this practice is highly scrutinized and typically prohibited. The other options, such as an incentive, rebate, or discount point, refer to different forms of compensation or arrangements that do not involve direct, unethical payments for referrals, which distinguishes them from kickbacks. Therefore, identifying this practice as a kickback aligns with legal standards and ethical considerations in real estate transactions.