PRIOR HISTORY:  [**1]  Appeal from the United States District Court for the Northern District of Georgia.  D. C. Docket No. 98-01032 CV-0DE-1. Orinda D. Evans, Judge.

 

DISPOSITION: Affirmed.

 

CASE SUMMARY:

 

 

PROCEDURAL POSTURE: Plaintiffs, borrowers, sued defendants, lenders, challenging the legality under the Real Estate Settlement Procedures Act of the lenders' payment of a yield spread premium (YSP) to the mortgage broker who helped arrange their home loan. The United States District Court for the Northern District of Georgia. granted summary judgment in favor of the lenders. The borrowers appealed.

 

OVERVIEW: The mortgage broker received a total of $ 2,125 for the services, of which $ 375 was the YSP that the lenders paid to the mortgage broker. To resolve the issue, the appellate court applied the two-part test promulgated by the United States Department of Housing and Urban Development (HUD) in U.S. Dep't Hous. & Urban Dev. Real Estate Settlement Procedures Act Statement of Policy 2001-1: Clarification of Statement of Policy 1999-1 Regarding Lender Payments to Mortgage Brokers, and Guidance Concerning Unearned Fees Under Section 8(b), 66 Fed. Reg. 53,052 (HUD statement). Under the first part of the HUD test, the appellate court noted that the mortgage broker provided many of the services listed in the HUD statement. Because the mortgage broker provided actual services (as opposed to being simply a referral fee), the appellate court applied the second step of the HUD test -- whether the total compensation was reasonable. The borrowers never alleged that the mortgage broker's fees were unreasonable. They claimed that the YSP was not actually tied to specific services, and for this reason, the YSP was improper. However, the HUD statement rejected this argument.

 

OUTCOME: The appellate court affirmed the decision of the district court.

 

LexisNexis(R) Headnotes

 

 

Banking Law > Bank Activities > Consumer Protection > Real Estate Settlement Procedures

[HN1] U.S. Dep't Hous. & Urban Dev. Real Estate Settlement Procedures Act Statement of Policy 2001-1: Clarification of Statement of Policy 1999-1 Regarding Lender Payments to Mortgage Brokers, and Guidance Concerning Unearned Fees Under Section 8(b), 66 Fed. Reg. 53,052 (Oct. 18, 2001) applies retroactively.

 

Banking Law > Bank Activities > Consumer Protection > Real Estate Settlement Procedures

[HN2] See §  8 ( 12 U.S.C.S. §  2607) of the Real Estate Settlement Procedures Act.

 

Banking Law > Bank Activities > Consumer Protection > Real Estate Settlement Procedures

[HN3] In U.S. Dep't Hous. & Urban Dev. Real Estate Settlement Procedures Act Statement of Policy 2001-1: Clarification of Statement of Policy 1999-1 Regarding Lender Payments to Mortgage Brokers, and Guidance Concerning Unearned Fees Under Section 8(b), 66 Fed. Reg. 53,052 (Oct. 18, 2001) (2001 SOP), the United States Department of Housing and Urban Development (HUD) emphasized that a yield spread premium (YSP) -- calculated based on the difference between the interest rate of the loan and the market rate -- can be a useful means to pay some or all of a borrower's settlement costs as well as a legitimate tool to assist the borrower. 2001 SOP, 66 Fed. Reg. 53,052, 53,054. HUD stressed that neither §  8(a) ( 12 U.S.C.S. §  2607) of the Real Estate Settlement Procedures Act nor Statement of Policy 1999-1 supports the conclusion that a YSP can be presumed to be a referral fee based solely upon the fact that the lender pays the broker a YSP that is based upon a rate sheet. 2001 SOP, 66 Fed. Reg. at 53,055. HUD cautioned that YSPs must be evaluated on a case by case basis in the context of the specific factual circumstances applicable to each transaction. 2001 SOP, 66 Fed. Reg. at 53,054.

 

Banking Law > Bank Activities > Consumer Protection > Real Estate Settlement Procedures

[HN4] Under the two-part test found in U.S. Dep't Hous. & Urban Dev. Real Estate Settlement Procedures Act Statement of Policy 2001-1: Clarification of Statement of Policy 1999-1 Regarding Lender Payments to Mortgage Brokers, and Guidance Concerning Unearned Fees Under Section 8(b), 66 Fed. Reg. 53,052 (Oct. 18, 2001), a court first must determine whether a mortgage broker has provided goods or services of the kind typically associated with a mortgage transaction.

 

Banking Law > Bank Activities > Consumer Protection > Real Estate Settlement Procedures

[HN5] In determining whether a lender's payment of a yield spread premium (YSP) to a mortgage broker is proper, the United States Department of Housing and Urban Development (HUD) instructs courts to look at all the services performed and to evaluate them in the light of all the compensation (not the YSP in isolation) the mortgage broker received from any source. HUD does not believe that it is necessary or even feasible to identify or allocate which facilities, goods or services are performed or provided for a lender, for a consumer, or as a function of state or federal law. All services, goods and facilities inure to the benefit of both the borrower and the lender in the sense that they make the loan transaction possible.

 

Banking Law > Bank Activities > Consumer Protection > Real Estate Settlement Procedures

[HN6] A borrower's subjective belief that a mortgage loan origination fee is supposed to cover all of the services does not automatically transform a yield spread premium (YSP) into a referral fee. A YSP will fail the first element of the two-part test found in U.S. Dep't Hous. & Urban Dev. Real Estate Settlement Procedures Act Statement of Policy 2001-1: Clarification of Statement of Policy 1999-1 Regarding Lender Payments to Mortgage Brokers, and Guidance Concerning Unearned Fees Under Section 8(b), 66 Fed. Reg. 53,052 (Oct. 18, 2001), if it is a payment to a broker who provides no, nominal, or duplicative work.

 

Banking Law > Bank Activities > Consumer Protection > Real Estate Settlement Procedures

[HN7] The second step the two-part test found in U.S. Dep't Hous. & Urban Dev. Real Estate Settlement Procedures Act Statement of Policy 2001-1: Clarification of Statement of Policy 1999-1 Regarding Lender Payments to Mortgage Brokers, and Guidance Concerning Unearned Fees Under Section 8(b), 66 Fed. Reg. 53,052 (Oct. 18, 2001) (2001 SOP), requires determining whether the total compensation paid to a broker is reasonably related to the total value of the goods or services actually provided. Total compensation includes fees paid by a borrower and any yield spread premium paid by a lender, not simply the yield spread premium alone. 2001 SOP, 66 Fed. Reg. at 53,055.

 

COUNSEL: For Hirsch, Pamela C., Hirsch, David L., Appellants: Pope, C. Neal, Pope, McGlamry, Kilpatrick & Morrison, LLP, Columbus, GA. Tomlinson, Teresa Pike, Pope, McGlamry, Kilpatrick & Morrison, Columbus, GA. Norwood, William U., Pope, McGlamry, Kilpatrick & Morrison, LLP, Atlanta, GA.

 

For BankAmerica Corporation, Bank of America FSB, Inc., Appellees: Agoglia, Michael John, Morrison & Foerster, LLP, San Francisco, CA.

 

For BankAmerica Mortgage, Appellee: Ladner, Mark P., Morrison & Forester, LLP, New York, NY. Remar, Robert B., Rogers & Hardin, Atlanta, GA.

 

JUDGES: Before EDMONDSON, Chief Judge, COX and GIBSON * , Circuit Judges.

 

 * Honorable John R. Gibson, United States Circuit Judge for the Eighth Circuit, sitting by designation.

 

OPINION:  [*1307]  PER CURIAM:

In this RESPA case, Plaintiffs Pamela and David Hirsch appeal the district court's grant of summary judgment to defendants BankAmerica Corp. and Bank of America FSB (collectively "Bank of America"). We affirm.

This case is one of several dealing with the legality of the payment of Yield Spread Premiums (YSPs) by mortgage lenders to mortgage brokers. In Heimmermann v. First Union Mort. Corp., 305 F.3d 1257 (11th Cir. 2002), we said that [HN1] the Department of Housing and Urban Development's (HUD's) 2001 Statement of Policy (2001 SOP) n1 applies retroactively and governs the disposition of these cases.

 

n1 Real Estate Settlement Procedures Act Statement of Policy 2001-1: Clarification of Statement of Policy 1999-1 Regarding Lender Payments to Mortgage Brokers, and Guidance Concerning Unearned Fees Under Section 8(b), 66 Fed. Reg. 53,052 (Oct. 18, 2001).

 

 [**2]

BACKGROUND

Pamela and David Hirsch sought a mortgage loan to purchase a new home. They hired Rodgers Mortgage Company (Rodgers) to act as their mortgage broker. The Hirsches told Rodgers that they wanted a low interest rate and the lowest possible closing costs. Rodgers performed all the services necessary to allow the Hirsches to obtain a $ 150,000.00 home loan; and Rodgers selected Bank of America as the mortgage lender. n2

 

n2 It is undisputed that Rodgers provided a variety of services including these services:

 

 

(a) visiting the Hirsches on several occasions to obtain information;

 

(b) completing the loan application;

 

(c) preparing various required disclosure documents;

 

(d) obtaining and verifying the Hirsches' financial records;

 

(e) obtaining a credit report;

 

(f) arranging an inspection of the property;

 

(g) arranging for the appraisal of the property;

 

(h) re-scheduling the closing to accommodate the Hirsches; and

 

(i) attending the closing of the loan.

 

 

 [**3]

Rodgers received a total of $ 2,125.00 for their services. The Hirsches paid Rodgers a $ 1,000.00 loan origination fee n3 and a [*1308]  $ 750.00 loan discount fee. In addition, Bank of America paid Rodgers a $ 375.00 YSP. n4 Rodgers' total compensation was approximately 1.4% of the $ 150,000.00 loan. Rodgers typically received compensation ranging from 1.5% to 2% of mortgage loans. The total compensation was in the lower range of what other mortgage brokers in that market charged for similar transactions.

 

n3 The Hirsches believed the $ 1000.00 covered all of Rodgers' services. The Hirsches claim they are unaware of services that Rodgers specifically performed to earn the YSP.

n4 The YSP was derived from published rate sheets which tied the amount of the YSP to the amount and the interest rate of the loan.

 

The Hirsches' loan closed on 20 June 1996. Later, they filed this case --initially as a class action -- claiming the payment of the YSP violated section 8 of the Real Estate Settlement Procedures Act (RESPA). n5 [**4]  The district court denied class certification on 20 April 1999. In Richardson v. BankAmerica Corp., 58 Fed. Appx. 835, 2003 U.S. App. LEXIS 6625 (11th Cir. Jan. 24, 2003), we affirmed the district court's denial of class certification. While the class certification appeal was pending, Bank of America moved for summary judgment. The district court granted Bank of America's motion because the Hirsches "failed to demonstrate a genuine issue of fact as to Rodgers' actual provision of valuable goods and services or the reasonableness of their compensation for those services." n6

 

n5 Section 8 of RESPA prohibits the payment of referral fees, it provides in pertinent part:

 

[HN2] No person shall give and no person shall accept any fee, kickback, or thing of value pursuant to any agreement or understanding, oral or otherwise, that business incident to or a part of a real estate settlement service involving a federally related mortgage loan shall be referred to any person.

 

12 U.S.C. §  2607.

This case was filed in the Middle District of Georgia. Pursuant to a consent order, the case was transferred to the Northern District of Georgia and consolidated with Hirsch v. BankAmerica Corp., 2000 U.S. Dist. LEXIS 20394, Civil Action No. 1:98-CV-1031-ODE.

n6 Bank of America also moved for summary judgment on the Richardson's claims. Finding material facts at issue, the district court denied summary judgment on those claims. This portion of the district court's order is not before us, and we say nothing about it.

 

 [**5]

DISCUSSION

[HN3] In its 2001 SOP, HUD emphasized that a YSP -- calculated based on the difference between the interest rate of the loan and the market rate -- can be "a useful means to pay some or all of a borrower's settlement costs" as well as "a legitimate tool to assist the borrower." 2001 SOP, 66 Fed. Reg. 53052, 53054 (Oct. 18, 2001). HUD stressed that "neither Section 8(a) of RESPA nor the 1999 [SOP] supports the conclusion that a yield spread premium can be presumed to be a referral fee based solely upon the fact that the lender pays the broker a yield spread premium that is based upon a rate sheet . . . ." Id. at 53055. HUD cautioned that YSPs must be evaluated on a case by case basis in the context of "the specific factual circumstances applicable to each transaction." Id. at 53054.

After stating YSPs were not per se legal or illegal, HUD clarified a two part test -- which we adopted in Heimmermann -- to determine the legality of a payment from a mortgage lender to a mortgage broker. Id. at 53055; see also Heimmermann, 305 F.3d 1257 at 1263-64. The test is satisfied here.

[HN4] Under HUD's test, we first must [**6]  "determine whether the broker has provided goods or services of the kind typically associated with a mortgage transaction." Heimmermann, 305 F.3d 1257 at 1263.  [*1309]  HUD, in its 1999 Statement of Policy (1999 SOP) n7, listed some services that satisfy this factor. See 1999 SOP, 64 Fed. Reg. 10080, 10085 (Mar. 1, 1999). Rodgers provided many of these services: taking information from the borrower; filling out the application; analyzing the prospective borrower's income and debt; collecting financial information; initiating/ordering appraisals and inspections; providing disclosures; maintaining regular contact with the borrower; and attending the closing. n8

 

n7 Real Estate Settlement Procedures Act Statement of Policy 1999-1 Regarding Lender Payments to Mortgage Brokers, 64 Fed. Reg. 10,080 (March 1, 1999).

n8 The Hirsches argue Bank of America failed to identify services performed by Rodgers to earn the YSP in particular. But [HN5] HUD instructs us to look at all the services performed and to evaluate them in the light of all the compensation (not the YSP in isolation) the mortgage broker received from any source.

 

 

HUD does not believe that it is necessary or even feasible to identify or allocate which facilities, goods or services are performed or provided for the lender, for the consumer, or as a function of State or Federal law. All services, goods and facilities inure to the benefit of both the borrower and the lender in the sense that they make the loan transaction possible . . . .

 

 

1999 SOP, 64 Fed. Reg. at 10086. [HN6] The Hirsches' subjective belief that the $ 1000 origination fee was supposed to cover these services does not automatically transform the YSP into a referral fee. Rodgers possibly should have done a better job of explaining its compensation to the Hirsches, but this fact does not make the YSP illegal. A YSP will fail the first element of HUD's test if it is "a payment to a broker who provides 'no, nominal, or duplicative work' . . . ." Heimmermann, 305 F.3d 1257 at 1263 n.8.

The Hirsches argument that the YSP was not itemized as a credit to the borrower in the 200 series of the HUD-1 form and therefore did not offset their costs is also unpersuasive. HUD recommends -- but does not require -- listing YSPs in the 200 series. 66 Fed. Reg. at 53056. The YSP was disclosed on the HUD-1 form exactly as HUD requires.

 

 [**7]

Because Rodgers did provide actual services, we proceed to [HN7] the second step of HUD's test, "determining whether the total compensation paid to the broker is reasonably related to the total value of the goods or services actually provided." Heimmermann, 305 F.3d 1257 at 1264. "Total compensation includes fees paid by a borrower and any yield spread premium paid by a lender, not simply the yield spread premium alone." 2001 SOP, 66 Fed. Reg. at 53055. The Hirsches have never argued that Rodgers's total compensation was unreasonable in the light of the services Rodgers performed. Their argument, in a nutshell, was that the YSP, in particular, was not actually paid for -- or tied to -- specific services; so, they say the YSP was improper. This legal position was rejected by HUD's 2001 SOP which we adopted in Heimmermann.

We accept the district court's unchallenged determination of reasonableness. Because both elements of HUD's test were met, we AFFIRM the district court's grant of summary judgment. n9

 

n9 The district court also granted summary judgment because of RESPA's one-year statute of limitations. Because we affirm the grant of summary judgment on this ground, we do not decide whether the claim was timely.

 

 [**8]

AFFIRMED.