Mortgage education
Affiliated Business Arrangement Disclosures When a Builder Refers Its Own Lender
A builder may refer a lender, title agency, or insurance agency it owns part of. Federal law allows that on three conditions: a written disclosure no later than the referral, no required use of a particular provider, and nothing of value beyond a return on an ownership interest. Here is what each condition means for you.
The short answer: a referral is not a requirement.
Generally no. Under Regulation X, a person making a referral inside an affiliated business arrangement may not require you to use a particular settlement service provider, apart from narrow exceptions the rule names. A genuinely optional discount is not required use. Ask for the written disclosure the rule requires, and read it before you sign.
A new-home sales office often introduces a lender in the same conversation as the incentive. Sometimes that lender, the title agency, or the insurance agency is a company the builder owns part of. Federal law names that structure, sets conditions on it, and gives you a document you are entitled to receive before the referral turns into a decision.
This article explains those conditions and what the required disclosure has to say. It is general education about a federal rule. It is not legal advice, and it makes no statement about whether any particular builder, lender, title agency, or arrangement satisfies the rule. Take the documents in front of you to your own attorney. For how much a builder may contribute toward your closing costs, read what a builder can pay toward closing costs.
What an affiliated business arrangement is.
Section 8 of the Real Estate Settlement Procedures Act, at 12 U.S.C. 2607, prohibits giving or accepting a thing of value in return for referring settlement service business. An affiliated business arrangement is the narrow, conditional carve-out from that prohibition. Regulation X states the carve-out in one sentence:
“An affiliated business arrangement is not a violation of section 8 of RESPA (12 U.S.C. 2607) and of § 1024.14 if the conditions set forth in this section are satisfied.”
The arrangement is not permitted simply because two related companies say they are related. It is permitted if the conditions are satisfied, and the section sets out three: a written disclosure, no required use of a particular provider, and a strict limit on what the referring party may receive.
A builder sits squarely inside this framework. Regulation X defines a person who is in a position to refer settlement service business as “any real estate broker or agent, lender, mortgage broker, builder or developer, attorney, title company, title agent, or other person deriving a significant portion of his or her gross income from providing settlement services.” A production builder referring buyers to a lender it owns part of is doing what that definition describes.
The section also defines the relationship that makes companies affiliated: effective control by one entity over another, common control by a third entity, or a parent-to-subsidiary relationship through an identity of stock ownership. Control includes holding more than 20 percent of another person's voting interests or contributing more than 20 percent of its capital. None of this makes an affiliated lender a worse choice than an unaffiliated one. It changes what must be disclosed and what the parties may lawfully do with the referral.
The written disclosure you should receive, and when.
The first condition is a document. Regulation X describes what it must contain and when it must arrive:
“The person making each referral has provided to each person whose business is referred a written disclosure, in the format of the Affiliated Business Arrangement Disclosure Statement set forth in appendix D of this part, of the nature of the relationship (explaining the ownership and financial interest) between the provider of settlement services (or business incident thereto) and the person making the referral and of an estimated charge or range of charges generally made by such provider .... The disclosures must be provided on a separate piece of paper no later than the time of each referral or, if the lender requires use of a particular provider, the time of loan application…”
Three details there are worth holding onto. The disclosure explains the ownership and financial interest, not merely that a relationship exists. It states an estimated charge or a range of charges, so you have something to compare against. And it is a separate piece of paper delivered no later than the referral itself, rather than after the process has carried you along.
Appendix D to Part 1024 supplies the format. Its model text tells the recipient, in the same paragraph as the estimated charges, that “You are NOT required to use the listed provider(s) as a condition for [settlement of your loan on] [or] [purchase, sale, or refinance of] the subject property.” The notice then states in capital letters that other settlement service providers offering similar services are frequently available and that the recipient may shop among them. An acknowledgment line closes the form, confirming you understand the referring party may receive a financial or other benefit from the referral.
A delivery failure can be excused only by proving, by a preponderance of the evidence, that procedures reasonably adopted to comply were maintained and that the failure was unintentional and a bona fide error. An error of legal judgment about a person's obligations under RESPA is not a bona fide error. Documents provided under the section must be retained for 5 years after the date of execution.
If no such paper reaches you, ask for it by name. If one does, read the ownership description and the estimated charges before signing the acknowledgment. The site's guide to the settlement services you are allowed to shop for shows where those charges appear on a Loan Estimate.
Required use, and why an optional discount is different.
The second condition is the one your question is really about. Regulation X defines the term it turns on:
“Required use means a situation in which a person must use a particular provider of a settlement service in order to have access to some distinct service or property, and the person will pay for the settlement service of the particular provider or will pay a charge attributable, in whole or in part, to the settlement service. However, the offering of a package (or combination of settlement services) or the offering of discounts or rebates to consumers for the purchase of multiple settlement services does not constitute a required use. Any package or discount must be optional to the purchaser. The discount must be a true discount below the prices that are otherwise generally available, and must not be made up by higher costs elsewhere in the settlement process.”
That definition is why the answer is usually no, and also why it is not a flat no in every case. Two offers can read the same on a sales sheet and land on opposite sides of the line. The first is an arrangement where you must use the affiliated provider to reach something distinct that would otherwise be available to you, and you will bear the affiliate's charge. That is required use.
The second is a package or discount offered for buying several settlement services together. The definition says that does not constitute a required use, but it attaches three tests, all of them in the text. The package or discount “must be optional to the purchaser.” The discount “must be a true discount below the prices that are otherwise generally available.” And it “must not be made up by higher costs elsewhere in the settlement process.”
Those are questions of fact, answerable before you commit. Ask what the incentive looks like if you take your financing elsewhere: withdrawn, reduced, or unchanged. Get the answers in writing. You can also change course later; the site's article on changing lenders after a Loan Estimate covers what that involves.
The exceptions the rule actually names.
The no-required-use condition is not unqualified, and the qualifications are short and specific:
“No person making a referral has required (as defined in § 1024.2, ‘required use’) any person to use any particular provider of settlement services or business incident thereto, except if such person is a lender, for requiring a buyer, borrower or seller to pay for the services of an attorney, credit reporting agency, or real estate appraiser chosen by the lender to represent the lender's interest in a real estate transaction, or except if such person is an attorney or law firm for arranging for issuance of a title insurance policy for a client, directly as agent or through a separate corporate title insurance agency that may be operated as an adjunct to the law practice of the attorney or law firm, as part of representation of that client in a real estate transaction.”
Both exceptions are tied to a role. The first belongs to a lender, covers three named services, and exists so the lender can choose the professionals who represent its own interest. The second belongs to an attorney or law firm arranging title insurance as part of representing a client. Neither is a general license for a party that benefits from the sale to direct you to a company it owns.
Appendix D carries its own paragraph for the lender-chosen category, and its wording marks the boundary:
“Set forth below is the estimated charge or range of charges for the settlement services of an attorney, credit reporting agency, or real estate appraiser that we, as your lender, will require you to use, as a condition of your loan on this property, to represent our interests in the transaction.”
The preparer instructions say which paragraph to use: the general one for ordinary referrals, the one above for the three lender-required services. If a form uses the lender-required paragraph for anything other than an attorney, a credit reporting agency, or a real estate appraiser, that is a reasonable thing to ask about.
What the referring party is allowed to receive.
The third condition limits the benefit itself:
“The only thing of value that is received from the arrangement other than payments listed in § 1024.14(g) is a return on an ownership interest or franchise relationship.”
Ordinary dividends and capital or equity distributions tied to an ownership interest or franchise relationship are permissible between affiliated entities, as are bona fide business loans and capital contributions made for ordinary business purposes. What the rule refuses is a return that is really a referral fee wearing different clothes. Regulation X says a return on an ownership interest does not include a payment whose basis of calculation has no apparent business motive other than distinguishing among recipients on the basis of the amount of their actual, estimated or anticipated referrals, a payment that varies according to the relative amount of referrals, or a payment based on an ownership, partnership or joint venture share that has been adjusted on the basis of previous relative referrals.
The rule then closes the obvious workaround, and the language is worth quoting because it sets the standard of review:
“Neither the mere labeling of a thing of value, nor the fact that it may be calculated pursuant to a corporate or partnership organizational document or a franchise agreement, will determine whether it is a bona fide return on an ownership interest or franchise relationship. Whether a thing of value is such a return will be determined by analyzing facts and circumstances on a case by case basis.”
Whether an arrangement satisfies this condition is not something anyone settles by reading a marketing sheet, because the standard is facts and circumstances. That is why the first two conditions matter to you directly: they are the ones you can see and act on, while the third sits between the affiliated companies and their regulators.
What to do when a builder refers its own lender.
Nothing here is a reason to refuse an affiliated lender. The point is to make the choice on the same footing you would use for any other provider.
- Ask directly whether an affiliation exists. Ask about the lender, the title agency, and the insurance agency separately. Common ownership in one tells you nothing about the others.
- Ask for the affiliated business arrangement disclosure by name. The rule requires it on a separate piece of paper no later than the referral, or the time of loan application if a lender requires a particular provider.
- Read the ownership description, not only the signature line. The disclosure is supposed to explain the ownership and financial interest between the parties.
- Note the estimated charge or range of charges. That figure exists so you can compare, which only works if you collect one.
- Ask what happens to the incentive if you use a different provider. Withdrawn, reduced, or unchanged tells you which side of the required use definition the offer sits on.
- Ask whether any other charge moves. A discount may not be made up by higher costs elsewhere in the settlement process.
- Get a second quote in writing. A true discount is measured against the prices otherwise generally available, and you cannot test that claim without something to test it against.
- Take a specific concern to your own counsel. Whether an arrangement complies is a legal question about facts and circumstances, and not one a loan officer, a sales agent, or an article can answer for you.
If a disclosure never appears, or the answers are vague, that is a reason to slow down rather than to accuse anyone of anything. The Consumer Financial Protection Bureau publishes the full regulation and takes consumer complaints about settlement service practices at consumerfinance.gov/complaint. The Texas closing cost guide explains what appears on a settlement statement, and Jonathan can walk through the fee questions through the contact page. Licensing information is on the disclosures page.
Official sources used for this article
This article quotes the regulations rather than summarizing them, because the wording carries the rule. Ask your own attorney how current requirements apply to a specific arrangement.
- Electronic Code of Federal Regulations: 12 CFR 1024.15, Affiliated business arrangementsConditional exemption in (b); disclosure and timing in (b)(1); bona fide error; exceptions in (b)(2); ownership-return limit in (b)(3); definitions in (c); five-year recordkeeping in (d). Latest eCFR amendment date January 1, 2017. Accessed August 21, 2026.
- Electronic Code of Federal Regulations: 12 CFR 1024.2, DefinitionsThe quoted “required use” definition and its optional-package, true-discount, and no-higher-costs-elsewhere tests. Latest eCFR amendment date April 19, 2023. Accessed August 21, 2026.
- Electronic Code of Federal Regulations: Appendix D to Part 1024, Affiliated Business Arrangement Disclosure Statement Format NoticeThe model format, the “You are NOT required to use the listed provider(s)” sentence, the lender-required paragraph, and the preparer instructions. Latest eCFR amendment date January 1, 2017. Accessed August 21, 2026.
- Consumer Financial Protection Bureau: Regulation X, § 1024.15 Affiliated business arrangementsBureau-published current version, used to confirm the quoted text of (b)(1), (b)(2), and (b)(3). Accessed August 21, 2026.
- Consumer Financial Protection Bureau: Regulation X, § 1024.2 DefinitionsBureau-published current version, used to confirm the quoted “required use” definition. Accessed August 21, 2026.
- Consumer Financial Protection Bureau: Regulation X, Appendix D to Part 1024Bureau-published current version, used to confirm the quoted model language. Accessed August 21, 2026.
Information reviewed: The primary sources cited in this article were checked on . This article provides general mortgage education about a federal regulation. It is not legal advice, not tax advice, not a commitment to lend, and not a statement about whether any particular arrangement complies with the rule. Read our editorial policy.