Client Alert

Mortgage Report


RESPA Ruling—"NYET" to Overcharges, "DA" to Markups

Section 8 of RESPA doesn’t prohibit overcharges, said the Third Circuit in August, but it can prohibit markups. (Santiagov.GMAC Mortgage Group, Inc., ___ F.3d ___ 2005 WL 1840031 (3d Cir. 2005).)  In Santiago, plaintiff obtained a home loan from GMAC and was charged fees of $85 (tax service), $20 (flood certification), and $250 (funding fee). He sued under RESPA, arguing that the first two services were performed by third-party vendors and included an illegal mark-up, whereas the third fee had a reasonable value of only $20 such that the excess amount was essentially a fee without any corresponding "services rendered."  The court concluded there is no cause of action for overcharges with respect to the $250 "funding fee." 

Markups are different. The Third Circuit agreed with HUD’s 2001-1 Policy Statement and with the Eleventh Circuit in concluding that a settlement service provider who marks up the cost of a third-party service and pockets the difference violates section 8(b)’s prohibition on "accepting a portion" of the charge for services that the settlement service provider didn’t perform. This is contrary to the holdings of the Fourth (Boulware), Seventh (Krzalic), and Eighth (Haug) Circuits. Still, it’s possible, said the Santiago court, that the defendant provided ancillary services thereby justifying the additional charge, and it remanded the case back to the district court to make that determination.

Practice Tip:  The U.S. Supreme Court may have to sort this out.

For further information, contact Michael Agoglia (

War of the Words

Professional wrestling looks peaceful next to the verbal smackdown between the OCC and New York Attorney General Eliot Spitzer over access to Home Mortgage Disclosure Act (HMDA) data. This year, for the first time, the HMDA data that banks are required to disclose includes pricing information. According to Spitzer, these data show a higher proportion of high-rate loans among minority groups, spurring him to open an investigation of several national banks’ mortgage lending practices. He subpoenaed several banks. In response, the OCC and New York Clearing House Association sued Spitzer and sought a temporary restraining order.

The federal court declined to issue a restraining order, but will entertain a preemption motion. In that regard, Wells Fargo Bankv.Boutris ought to help the OCC’s cause. (See Operations Report, this issue.)

Outside the ring, Spitzer said of the OCC’s lawsuit, "[W]hile such a move was expected from the banks, it is shameful that a federal regulator would join in an effort to shield the banks from scrutiny by state regulators."  To which then-Acting Comptroller of the Currency Julie L. Williams replied, "The OCC is absolutely committed to assuring that the national banking system is free of lending discrimination of any sort. This issue is vital and it is complex and it must not be politicized."  "Unfortunately, the Attorney General’s actions undermine the OCC’s ability to effectively implement our supervisory responsibilities."

Even if Spitzer’s investigation stalls on preemption grounds, you can expect state regulators to pursue state-chartered banks and the OCC to intensify its examination of national banks’ fair-lending practices.

For further information, contact Rebekah Kaufman (

Maryland’s Finder Fee Law Not Preempted

Maryland’s "Finder’s Fee Law" (Md. Com. Law §§ 12-801 et seq.) allows a mortgage broker to charge a fee only on the increase in the loan amount attributable to the refinance of a prior loan made the prior year. According to a Maryland appellate court, that law is not preempted by the Federal Depository Institutions Deregulation and Monetary Control Act (DIDMCA) because mortgage brokers are not "creditors" within the meaning of DIDMCA. (See Sweeneyv.Savings First Mortgage, 2005 Md. LEXIS 471 (Aug. 9, 2005).)  Other states may jump on the bandwagon and enact limits on the amount of fees mortgage brokers may charge.

For further information, contact Rebekah Kaufman (

Firm Offers of Credit or Credits for Plaintiffs’ Firms?

If your institution sends out firm offers of credit to "prequalified" customers, listen up. Unless your promotional materials specify the dollar amount, the interest rate, the method of computing the interest, the term of the loan, and other material terms and conditions, you might get sued under the Fair Credit Reporting Act (FCRA). If that happens, your prescreening access to consumers’ credit reports might not qualify for the "firm offer of credit" exception and, thus, violate FCRA. The same is true if class counsel decides your disclosure notice isn’t sufficiently "clear and conspicuous."

In Colev.U.S. Capital, Inc., 389 F.3d 719 (7th Cir. 2004), the Seventh Circuit held that a firm offer of credit "must have sufficient value for the consumer to justify the absence of the statutory protection of his privacy."  With the door opened a crack, class counsel is now driving a wedge through it. Scores of copycat Cole class actions have been brought against mortgage lenders, car dealerships, credit card issuers, even wireless service providers.

Practice Tip:  Cole is the new Rodash. But a district court found in mid-August that a Cole case was barred on the ground that there is no private cause of action under 15 U.S.C. § 1681m. (Murray v. Cross Country Bank (N.D. Ill. August 15, 2005).)

For more information, contact Michael Agoglia (




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