CBA Publications >> CBA Regulatory Compliance Bulletin >> Vol 2003 No.04
April 1, 2003

Vol 2003 No. 04 April 4, 2003

9th Circuit Affirms No Liability in YSP Case

In a published decision issued on March 20, 2003, the Ninth Circuit, of which California is a part, followed its recent decisions and concurred with other federal circuit courts in finding that loan broker compensation in the form of "yield spread premiums" ("YSPs") does not constitute a per se violation of the Real Estate Settlement and Procedures Act ("RESPA"), and that YSP claims are fact intensive and thus not amenable to adjudication as class actions.

In Bjustrom v. Trust One Mortgage Corp. (appealed from the U.S. District Court for the Western District of Washington), the class was composed of all mortgagors (borrowers) whose Federal Housing Administration (FHA) mortgage loans were funded by Trust One and where mortgage brokers were paid compensation in excess of 1% of the aggregate loan amount. Trust One is an Irvine, California lender that primarily operates through mortgage brokers who refer loans to the company for funding.

Trust One paid its referring brokers both YSPs and "service release premiums ("SRPs"), which are based on the amount of the loan referred to the lender to service. A larger loan has more valuable servicing rights because the total interest paid by the borrower is greater.

Bjustrom's first claim of breach of contract was based on the assertion that the executed Deeds of Trust incorporated a FHA regulation that limits the amount that a mortgagee may collect from the mortgagor (to compensate for expenses incurred in originating and closing a loan) to the greater of $20 dollars or 1% of the loan amount. 24 C.F.R. § 203.27(a)(2)(i). The court rejected the contract claim, noting that the regulation limits only fees collected from the mortgagor-borrower, not fees paid by a lender to a mortgage broker.

On the RESPA claim, the court reviewed the second HUD Statement of Policy on broker payments, and applied the two-part test in determining whether a charge is consistent with Section 8 of RESPA: (1) whether goods or facilities were actually furnished or services were actually performed for the compensation paid, and (2) whether the payments are reasonably related to the value of the goods or facilities that were actually furnished or services that were actually performed.

The court followed its earlier Schuetz ruling that RESPA requires a loan-specific analysis of whether total mortgage broker compensation from all sources is reasonable. See Schuetz, 292 F.3d at 1013, n.6. As to the first prong, the court found substantial evidence that the loan broker provided Bjustrom with an array of goods, facilities, and services related to the loan transaction. As to the second prong, the total compensation received by the broker was deemed to be reasonably related to the services it provided.

This decision further establishes the rule in the Ninth Circuit, as well as others, that claims based on yield spread premiums would not be heard as class actions, and that the payment of YSPs (or SRPs), alone, cannot be the basis of a RESPA violation.

Schuetz v. Banc One Mortg. Corp., 292 F.3d 1004 (9th Cir. 2002), Lane v. Residential Funding Corp., __ F.3d __ (9th Cir. 2003).
See Culpepper v. Irwin Mortg. Corp., 253 F.3d 1324 (11th Cir. 2001)
RESPA 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)