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Rtgage Mortagagemortgagelender Training 66 Mortgage Mortgage Lender Mortgage brokers and yield spread premiums: legitimate fees or illegal kickbacks? - Free Online Library

Rtgage Mortagagemortgagelender Training 66 Mortgage Mortgage Lender

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YSP Youth Smoking Prevention
YSP Yale Summer Program " or simply not divulged to the borrower. As such, are these premiums illegal kickbacks or legitimate fees under federal and state law?

The applicable federal law, the Real Estate Settlement Procedures Act The Real Estate Settlement Procedures Act, (known as "RESPA"), was an Act passed by the United States Congress in 1974. It is codified at Title 12, Chapter 27 of the United States Code, 12 U.S.C. 2601-2617. (RESPA RESPA Real Estate Settlement Procedure Act ), 12 U.S.C. [subsections] 2601 et seq et seq. (et seek) n. abbreviation for the Latin phrase et sequentes meaning "and the following." It is commonly used by lawyers to include numbered lists, pages or sections after the first number is stated, as in "the rules of the road are found in Vehicle Code ., was enacted in 1974 to protect consumers by requiring disclosures of fees and costs connected with receiving a federally related mortgage transaction. Violations may result in both criminal and civil penalties, including treble damages A recovery of three times the amount of actual financial losses suffered which is provided by statute for certain kinds of cases.

The statute authorizing treble damages directs the judge to multiply by three the amount of monetary damages awarded by the jury in those cases .[3] The enforcing agency is the U.S. Department of Housing and Urban Development (HUD Hud (hd), a pre-Qur'anic prophet of Islam. Hud unsuccessfully exhorted his South Arabian people, the Ad, to worship the One God. ).

Private actions are allowed with attorneys' fees awarded to the prevailing party The litigant who successfully brings or defends an action and, as a result, receives a favorable judgment or verdict.

prevailing party n. the winner in a lawsuit. at the court's discretion.[4] Under [sections] 8 of RESPA, it is illegal to give or accept any fee, kickback The seller's return of part of the purchase price of an item to a buyer or buyer's representative for the purpose of inducing a purchase or improperly influencing future purchases. , or thing of value for referrals or fee-splitting in connection with a real estate closing. Yet, payment for goods furnished or services actually performed is allowed as long as it bears a reasonable relationship to the market value of the goods/services.[5] Therein lies the argument of whether this premium can be defined as a service and therefore exempt or an illegal unearned fee.

HUD has not taken a position on the illegality of these payments but has proposed a rule clarifying when under RESPA a broker must disclose the payment of a YSP.[6] Under the rule, brokers would be covered by a safe harbor Safe Harbor

1. A legal provision to reduce or eliminate liability as long as good faith is demonstrated.

2. A form of shark repellent implemented by a target company acquiring a business that is so poorly regulated that the target itself is less attractive. from RESPA liability if they enter a binding contract with the borrower prior to obtaining a mortgage application. These contracts would state what services and duties the broker would provide and whom he or she represents, the maximum amount of compensation the broker would earn from the lender and borrower (expressed as a percentage), and whether the broker receives indirect fees from the lender. Additionally, the contract would require the broker's license number. If a broker complies with these disclosures, any direct fees received from the borrower and indirect fees from the lender would be presumed legal. This presumption may be rebutted by the borrower if the total compensation does not pass a numeric test which HUD will develop in the future. The broker may overcome the presumption by proving that the total compensation is reasonably related to the value of the goods or services provided.

The HUD proposal is still being debated; however, the case law is varied. One of the first cases addressing this dispute was Mentecki v. Saxon Mortgage, Inc., 1997 WL 45088 (E.D. Va.). In Mentecki, the plaintiffs arranged with their broker for refinancing Refinancing

An extension and/or increase in amount of existing debt. on their house. The broker obtained a commitment from a lender, Saxon Mortgage, who, at closing, paid a YSP of $2204.30 to the broker. Plaintiffs were never aware of the YSP payment prior to closing and sued, claiming violations of RESPA and failing to disclose fees. Defendant Saxon Mortgage moved to dismiss the complaint on a HUD interpretation of RESPA which only required disclosure but never prohibited broker's compensation in the form of YSPs.[7] The court denied the motion to dismiss, concluding that the payment of a YSP is a referral violating RESPA:

By their very nature, YSPs are not compensation for services actually performed by the broker. The reality of the transaction is that the broker benefits by payment of the premium, the lender benefits by obtaining a higher than par loan, and the borrower pays. Quite simply, the premium rewards the broker for referring the above par loan.[8]

Curiously, the court later clarified its earlier ruling, stating "certainly the court has not reached a final decision about the legality le·gal·i·ty
n. pl. le·gal·i·ties
1. The state or quality of being legal; lawfulness.

2. Adherence to or observance of the law.

3. A requirement enjoined by law. Often used in the plural. of yield spread premiums."[9]

In a subsequent class action, Barbosa v. Target Mortgage Corp., 968 F. Supp. 1548 (S.D. Fla. 1997), the lead plaintiffs approached Target, a mortgage broker, for financing a home purchase at 8.75 percent. Target obtained the financing from Princeton, a mortgage banker Mortgage Banker

A company, individual or institution that originates, sells and services mortgage loans.

Notes:
Don't confuse a mortgage banker with a mortgage broker. , at 9.5 percent plus an origination fee A charge imposed by a lending institution or a bank for the service of processing a loan.

For example, a bank might charge an individual who has applied for a student loan an origination fee of one percent for processing the application and granting the loan. of $351, a discount fee of $702, and a $65 processing fee. Additionally, the settlement statement reflected a YSP payment of $2457 to Target. Plaintiffs alleged that the YSP was not only an illegal kickback but also an illegal splitting of fees. The court held that the payment of the YSP was not a kickback. It was a legitimate fee for Target's procurement of a loan which matched one of three loan options Princeton made available to brokers on a rate sheet. Although this option offered an above market rate, it relieved the borrowers of their obligation to pay the broker up front for the full value of its services at closing. The court added that no referral of business occurred as defined by HUD since Princeton never paid Target for obtaining the business but, instead, for procuring a loan at an above market rate.[10] The court did hold that the splitting of fees could be illegal under RESPA if the charge was not for services actually performed. The plaintiffs argued that there was no additional service performed in obtaining the above market rate loan or justification for the extra cost. The court disagreed, holding, "If arms-length bargaining in the mortgage marketplace set the payment for the broker's services, the payment is reasonable enough within the meaning of RESPA.[11] Even though the plaintiffs were never aware of the YSP until closing (and then told that the above market rate was due to an increase in rates), the court felt a legitimate market process occurred since the plaintiffs had the opportunity to shop the loan but chose instead to stay with the defendants. Thus, per the court, a broker's service is reasonably related to its value if borrowers are willing to pay for it. It would seem this holding contradicts RESPA's requiring a reasonable relationship to the market value of the goods or services actually performed in obtaining a loan.[12]

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