Court follows suit on HUD's YSP policy

September 20, 2002

Says kickback fees require case-by-case analysis, overrules Culpepper III decision

Inman News Features

The 11th Circuit Court of Appeals this week concluded that a case-by-case analysis is necessary to determine whether payment of Yield Spread Premiums (YSPs) constitutes an unlawful referral fee under the Real Estate Settlement and Procedures Act (RESPA).

The court made the decision to apply the Department of Housing and Urban Development's 2001 clarification of its YSP policy to Heimmermann v. First Union Mortgage Corp., and overruled the Culpepper v. Irwin Mortgage Corp. decision of June 2001, which said that virtually all YSPs were unlawful.

A YSP is a payment made by a lender to a broker in exchange for that broker's delivery of a high interest rate mortgage. YSPs provide homebuyers with the option to finance certain fees within their mortgage, thereby reducing the cash necessary to purchase a home at closing. The fees are financed over the life of the loan in exchange for the borrower's paying a slightly higher interest rate.

The Mortgage Bankers Association of America applauded the decision, stating that the results of Culpepper III exposed the mortgage lending industry to potentially enormous liabilities for allowing home buyers to use YSPs as a step to homeownership.

Copyright: Inman News Service

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