Bettina J. Schuetz v. Banc One Mortgage Corporation

292 F.3d 1004, 2002 Cal. Daily Op. Serv. 5058, 2002 Daily Journal DAR 6427, 2002 U.S. App. LEXIS 10971, 2002 WL 1271520
CourtCourt of Appeals for the Ninth Circuit
DecidedJune 10, 2002
Docket01-16206
StatusPublished
Cited by78 cases

This text of 292 F.3d 1004 (Bettina J. Schuetz v. Banc One Mortgage Corporation) is published on Counsel Stack Legal Research, covering Court of Appeals for the Ninth Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Bettina J. Schuetz v. Banc One Mortgage Corporation, 292 F.3d 1004, 2002 Cal. Daily Op. Serv. 5058, 2002 Daily Journal DAR 6427, 2002 U.S. App. LEXIS 10971, 2002 WL 1271520 (9th Cir. 2002).

Opinions

OPINION

RYMER, Circuit Judge.

This appeal requires us to decide whether yield spread premiums, which are fees paid by mortgage lenders to mortgage brokers that are based on the difference between- the interest rate at which the broker- originates the loan and the par, or market rate offered by the lender, are lawful under the Real Estate Settlement Procedures Act (RESPA), 12 U.S.C. § 2601 et seq. (West 2001). RESPA prohibits the giving or receiving of fees for referral as part of a real estate settlement service but permits fees that are paid for [1006]*1006facilities actually furnished or services actually performed in the making of a loan. RESPA, § 8(a),- (c)(2); 12 U.S.C. § 2607(a), (c)(2).

Bettina J. Scheutz obtained a federally related mortgage loan from Banc One Mortgage Corporation through a mortgage broker, Home Mortgage Financial Corporation. She paid Home Mortgage direct fees and Banc One paid it a yield spread premium. She brought a class action challenging the yield spread premium payment as contrary to § 8(a).

We do not write on a clean slate in deciding whether the yield spread premium was a referral, because the Department of Housing and Urban Development ' (HUD), which is charged with enforcing RE SPA, has prescribed a test for determining the propriety of a yield spread premium payment. It asks whether services were actually performed for the total compensation paid to the mortgage broker, and whether that compensation is reasonably related to the services provided. The district court deferred to this test, correctly we believe, and declined to certify a class of borrowers for lack of a common question of fact. It then granted summary judgment in favor of Banc One on Scheutz’s claim that its payment of the yield spread ■ premium was really for a referral of business by Home Mortgage. The court concluded that the broker performed services that contributed to the transaction, and that Home Mortgage’s total compensation (of which the yield spread premium was a part) was reasonably related to the services provided. We agree with these rulings.

As we have jurisdiction, 28 U.S.C. § 1291, we affirm.

I

When Schuetz found a house that she wanted to buy in the Sun Lakes Country Club development in Sun Lakes, Arizona, she hired Home Mortgage Financial Corporation, a mortgage broker, to arrange a loan. Mortgage brokers are intermediaries who bring borrower and lender together. Borrowers typically approach the mortgage settlement process with a variety of individual characteristics and needs, including their credit rating, income, sensitivity to interest rate variations, and preference for paying charges up front or spreading them out in the form of a higher interest rate. Brokers furnish numerous services to consumers;1 in Schuetz’s case, [1007]*1007Home Mortgage analyzed her income and debt, explained the loan process and loan products available to her, collected her financial information, obtained a credit report on her behalf, secured an appraisal, prepared her loan package, and submitted it to Banc One. Mortgage brokers are compensated in several ways for their services. Compensation from the borrower to the broker is a direct fee, while money that the borrower pays the lender and the lender pays the broker is an indirect fee. Because lending institutions such as Banc One offer intermediaries options in structuring their compensation, brokers in effect determine their own compensation for any particular transaction by choosing the combination of loan characteristics and prices to offer a consumer.

A broker selects a loan product from among the various loans offered by the lending institutions with which it maintains a relationship. According to Home Mortgage, loans are selected based on the lender’s service, turnaround time, ability to make the required funds available, reputation in the community, level of professionalism, reputation with the banking department, competitive rates, underwriting flexibility, and the availability of products.

Home Mortgage obtained Schuetz a 30-year loan in the principal amount of $68,000 with a 7.5% interest rate from Banc One, which is a wholesale lender. This was above Banc One’s par rate. “Par rate” refers to the rate at which the lender will fund 100% of a loan with no premiums or discounts to the broker. For each loan product, Bane One estimates the secondary market value of a model loan and derives a “par” price (taking into account its own costs and return requirements) that it uses in developing rate sheets for brokers. If the interest rate on a particular loan exceeds the rate assumed by Banc One’s par price model, Banc One will pay the broker a “yield spread premium” equal to the value of the additional interest.

A yield spread premium, or “YSP,” is a lump sum paid by a lender to a broker at closing when the loan originated by the broker bears an above-par interest rate. As HUD has explained it:

Payments to brokers by lenders, characterized as yield spread premiums, are based on the interest rate and points of the loan entered into as compared to the par rate offered by the lender to the mortgage broker for that particular loan (e.g., a loan of 8% and no points where the par rate is 7.50% will command a greater premium for the broker than a loan with a par rate of 7.75% and no points). In determining the price of a loan, mortgage brokers rely on rate quotes issued by lenders, sometimes several times a day. When a lender agrees to purchase a loan from a broker, the broker receives the then applicable pricing for the loan based on the difference between the rate reflected in the rate quote and the rate of the loan entered into by the borrower....
Lender payments to mortgage brokers may reduce the up-front costs to consumers. This allows consumers to obtain loans without paying direct fees themselves. Where a broker is not compensated by the consumer through a direct fee, or is partially compensated through a direct fee, the interest rate of the loan is increased to compensate the broker or the fee is added to principal. [1008]*1008In any of the compensation methods described, all costs are ultimately paid by the consumer, whether through direct fees or through the interest rate.

1999 Statement of Policy, 64 Fed.Reg. at 10081 (footnotes omitted).

In this case, Schuetz paid her broker direct fees of $1,661.00, consisting of $688.00 for loan origination, $688.00 for loan discount, and $285.00 for processing. Banc One also paid Home Mortgage a yield spread premium of $516.00. This payment was identified on Schuetz’s HUD-1 Settlement Statement as “Mortgage Broker fee to Home Mortgage from BANC ONE.”2

Scheutz sued Banc One on behalf of a class of borrowers whose loan settlements included a yield spread premium payment, claiming that the YSP violates RESPA because it is a kickback for referral of a federally related mortgage loan.3 She sought class certification, which the district court denied.

Free access — add to your briefcase to read the full text and ask questions with AI

Related

Loesel v. Cooper
D. Nevada, 2019
Seaview Trading, LLC v. Commissioner
858 F.3d 1281 (Ninth Circuit, 2017)
Chultem v. Ticor Title Insurance Co.
2015 IL App (1st) 140808 (Appellate Court of Illinois, 2015)
Denise Edwards v. the First American Corp
798 F.3d 1172 (Ninth Circuit, 2015)
HSBC Bank USA, Natl. Trust Co. v. Teagarden
2013 Ohio 5816 (Ohio Court of Appeals, 2013)
Jaime Medrano v. Flagstar Bank, Fsb
704 F.3d 661 (Ninth Circuit, 2012)
Price v. Stevedoring Services of America, Inc.
697 F.3d 820 (Ninth Circuit, 2012)
Tamburri v. Suntrust Mortgage, Inc.
875 F. Supp. 2d 1009 (N.D. California, 2012)
Howland v. First American Title Insurance
672 F.3d 525 (Seventh Circuit, 2012)
Kiefaber v. HMS National, Inc.
284 F.R.D. 370 (E.D. Virginia, 2012)
Gila River Indian Community v. United States
776 F. Supp. 2d 977 (D. Arizona, 2011)
Bank of New York v. Parnell
56 So. 3d 160 (Supreme Court of Louisiana, 2010)
Ramirez v. Greenpoint Mortgage Funding, Inc.
268 F.R.D. 627 (N.D. California, 2010)

Cite This Page — Counsel Stack

Bluebook (online)
292 F.3d 1004, 2002 Cal. Daily Op. Serv. 5058, 2002 Daily Journal DAR 6427, 2002 U.S. App. LEXIS 10971, 2002 WL 1271520, Counsel Stack Legal Research, https://law.counselstack.com/opinion/bettina-j-schuetz-v-banc-one-mortgage-corporation-ca9-2002.