Mortgage Bankers Win First Litigation Battle Under New HUD YSP Policy
November 7, 2001
First Industry Litigation Win under New HUD YSP Policy Also Excludes YSPs from HUD's 1% Ceiling on Borrower Paid Loan Origination and Processing Fees.
The mortgage banking industry received its first favorable ruling in a case applying HUD's new RESPA Statement of Policy on yield spread premiums. The case is a major win because the federal District Court for the Western District of Washington at Seattle granted summary judgment for defendant Trust One Mortgage Corporation in a case alleging that yield spread premiums and servicing release premiums paid to mortgage brokers in excess of HUD's one percent ceiling on borrower paid loan origination and processing fees breached the FHA contract of mortgage insurance as well as RESPA. Last Spring, the court ruled in favor of plaintiffs and certified the class action.[Click Here for Court Decision[PDF] ]
In granting Trust One's motion for summary judgment, the court, deferring to HUD's interpretation of RESPA, states:
"Given the extensive litigation and clarification around yield spread premiums, the Court considers that HUD has elaborated a policy that yield spread premiums and service release premiums do not fall under the 1% fee cap."
As a result, the court concluded that YSPs and service release premiums in excess of the 1% cap are not per se violations of RESPA. Applying HUD's Statement of Policy, which provides that yield spread premiums are not per se unlawful, the court also rejected plaintiff's argument that yield spread premiums are violative of RESPA regardless of the amount. Finding for plaintiff on that argument would have undermined that part of HUD's liability test requiring an examination of the facts and circumstances of individual transactions.
Although the court expresses the view that a test for liability "closer to Culpepper's" would be more effective to protect consumers, the court still felt bound under applicable Supreme Court case law, to defer to HUD's interpretation of RESPA as formulated in the new policy statement. The court concluded as a matter of law that "there is no general 1% fee cap on mortgage broker compensation. Additionally the Court concludes that yield spread and service release premiums may be paid by lenders to mortgage brokers in addition to a 1% origination fee charged to borrowers."
The court does prescribe an immediate appeal for a clear statement of the law acknowledging that further litigation of the legal issues is likely across the country and within in the judicial circuit.
Trust One Mortgage Corporation was represented by Briggs and Morgan of Minnesota.
Source: Mortgage Bankers Association of America