Daily Development for Thursday, September 23, 2002

 

By: Patrick A. Randolph, Jr.
Elmer F. Pierson Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri
prandolph@cctr.umkc.edu

 

 

 

MORTGAGES; BROKERS; YIELD SPREAD PREMIUM:  Eleventh Circuit overrules Culpepper - refuses to certify class action on critical yield spread premium issue.

 

Heimmermann v. First Union Mortgage Corporation (11th cir 9/18/02)

 

http://www.law.emory.edu/11circuit/sept2002/99-14066.opn.html

 

This case is one of the over 150 class action lawsuits alleging that lender paid a mortgage broker compensation (Yield Spread Premium, or YSP) in violation of  Section 8 of RESPA, 12 USC 2607.  The 11th Cir. in the Culpepper cases,  held that these payments are more likely than not  payments for the referral of the loans to the lender and, therefore, are illegal.

 

HUD published a Statement of Policy in March,  1999, stating that mortgage broker fees were not illegal when paid by the lender, provided that the mortgage broker's total compensation was commensurate with the totality of the services provided toward consummating the loan transaction.  The Culpepper III decision, ironically argued on the same date as the instant case, sidestepped HUD's 1999 Statement of Policy on this issue, holding that the court would not need to review whether the broker was being paid for services rendered if the borrower could show that some of the money paid was intended as an illegal kickback.  Culpepper v. Inldand Mortgage Co., 253 F. 3d 1324  (11th Cir. 2001)    HUD then issued a clarifying Statement of Policy in 2001 that expressly rejected the Culpepper III holding.

 

This panel of the 11th Circuit reversed the earlier Culpepper III decision, holding that HUD's policy statements should be given deference, and that the earlier Culpepper decision was therefore wrong.  The Court stated:

"That we may have determined in Culpepper III that a different interpretation of RESPA (in our view) is better or more consistent with the statutory language does not require -- or even allow -- us to reject HUD's interpretation. "[T]he resolution of ambiguity in a statutory text is often more a question of policy than of law." Florida Manuf. Housing Ass'n, Inc. v. Cisneros, 53 F.3d 1565, 1572 (11th Cir. 1995) (quoting Pauley v. Bethenergy Mines, Inc., 111 S. Ct. 2524, 2534 (1991)); see also Gonzales v. Reno, 212 F.3d 1338, 1349 (11th Cir. 2000) ("[T]he courts cannot properly reexamine the wisdom of an agency-promulgated policy.").

 

That we may prefer a different interpretation is not enough to deny deference to the agency interpretation. See Florida Housing, 53 F.3d at 1572 ("[T]he court need not conclude that the agency construction was the only one it permissibly could have adopted . . . or even the reading the court would have reached if the question initially had arisen in a judicial proceeding.") (quoting Chevron, 104 S. Ct. at 2782 n.11). We conclude, therefore, that the 2001 SOP is entitled to Chevron deference."

 

The court then retroactively applied the HUD Statements of Policy in this case, holding that the policy statements were not new law, but merely an interpretation and clarification of existing law.

 

Reporter's Comment1: This decision comes on the heels of a proposed revision of HUD's Regulation X (July 29, 2002) that includes a very confusing definition of "mortgage broker" and which does not incorporate the principles of the  1999 and 2001 Policy Statements.  See Mortgage Banking newsletter at

 

http://www.lipsonneilson.com/JulyAug2002.htm#HUD_Trek_X_the_Undiscovered_Loan_Fee

 

for comments critical of the proposed rule change.

 

While lenders love this decision, some of their lawyers were holding their breath and hoping that the first appellate court to review this issue would not reject HUD's policy statements due to the fact that they were not incorporated in the proposed rule.

 

Reporter's Comment 2:  This decision brings the 11th Cir. in step with the 8th Circuit decision in the Glover v. Standard Federal Bank, the DIRT DD for 3/29/02.  We should await the review of this decision in other circuits before declaring victory for lenders and brokers.

 

Reporter's Comment 3:  This decision will embolden HUD to push through its agenda for revisions to Regulation X regardless of questions about HUD's authority.  HUD may figure that it has a good chance to rewrite the law in the guise of a revised rule without court interference, if it has at least a plausible leg to stand on in RESPA for its "interpretations."

 

Editor's Comment 1: This case is in entirely based upon principles of administrative law, and has nothing to do with real estate, except for the megamillion dollar impact the decision is likely to have on mortgage lenders faced with class actions around the country.  Note that the decision does nothing more than refuse to certify the class action.  It makes no final decision on whether a yield spread premium is a violation of RESPA, but concludes that any such determination must be made on a case by case basis, thus condemning plaintiff's attorney's to hopelessly expensive litigation with individually tiny  piecemeal victories at best.  Despite the undoubted commitment of these "consumer advocates" to the cause of right and justice, one suspects that with no big candle to be obtained at the end of the game, these lawyers will look for a way to sit on the bench.

 

Editor's Comment 2: Although hardly an authority on administrative law, the editor has delved into these issues enough to know that the Chevron principle is somewhat controversial in a number of areas in which courts conclude that agencies are not fulfilling the will of Congress and either exceeding or no measuring up to their delegated responsibilities in interpreting the law.  Of course, no one likes to think that these high level appellate court judges are result oriented, but we must admit that they are subject to the human frailty of inconsistency.  We'll see if other courts take the same view of HUD's authority as has this 11th Circuit panel.

 

The Reporter for this DD was Howard Lax of the Michigan Bar.

 

Readers are urged to respond, comment, and argue with the daily development or the editor's comments about it.

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