Glover vs Standard Federal Bank

United States Court of Appeals



No. 00-3611


Lonnie Glover; Dawn Glover,                    *

           Plaintiffs/Appellees,                        *

                    v.                                         *

Standard Federal Bank,                              * 

Appeal from the United States District Court for the  District of Minnesota 

          Defendant/Appellant,                        *

Heartland Mortgage,                                   *    

          Defandant                                        *   


Submitted: October 19, 2001

Filed: March 21, 2002


Before McMILLIAN, BEAM, and MURPHY, Circuit Judges.


BEAM, Circuit Judge.

The district court issued its first class certification in this matter on March 22,

2000, certifying a class defined as all people obtaining a mortgage brokered by

Heartland Mortgage ("Heartland") and financed by Standard Federal Bank ("Standard

Federal"). On September 26, 2000, the district court modified its class certification

to create a nationwide class defined as all individuals who obtained a mortgage

1We also note that a motion of Lonnie and Dawn Glover to strike the affidavit

of Margaret K. Savage was taken with the case. The motion is granted.

2The disputed payment in the instant case is actually referred to as a "service

release premium" in the required Department of Housing and Urban Development

disclosures form.


financed by Standard Federal and brokered by any mortgage broker. This nationwide

class certification, encompassing potentially hundreds or thousands of loans, is the

subject of this interlocutory appeal. Standard Federal appeals from the district court

order confirming class certification. For the reasons set forth below, we reverse.1


Named plaintiffs Lonnie and Dawn Glover acquired an adjustable rate

mortgage for the purchase of their home in the late 1980s. In 1996, they refinanced

their loan and obtained a fixed-rate mortgage. Heartland brokered the 1996

transaction and Standard Federal funded and acquired the 1996 mortgage.

As part of the 1996 refinancing, Heartland brokered a mortgage for the Glovers

with an "above par" interest rate and was subsequently paid a yield spread premium

("YSP") by Standard Federal.2 The payment of this YSP is the focus of the current


The Glovers argue that the payment of the YSP constitutes a fee for the referral

of a mortgage negotiated with interest rates that are disadvantageous to borrowers,

and that this payment violates the Real Estate Settlement Procedures Act ("RESPA"),

12 U.S.C. § 2601, et. seq. RESPA was enacted to initiate significant reforms in the

real estate settlement process "to insure that consumers throughout the Nation are

provided with greater and more timely information on the nature and costs of the

settlement process and are protected from unnecessarily high settlement charges


caused by certain abusive practices." 12 U.S.C. § 2601(a). RESPA prohibits the

payment of some referral fees, stating:

No person shall give and no person shall accept any fee, kickback, or

thing of value pursuant to any agreement or understanding, oral or

otherwise, that business incident to or a part of a real estate settlement

service involving a federally related mortgage loan shall be referred to

any person.

12 U.S.C. § 2607(a) ("Section 8"). Subsection (c) of section 2607 then qualifies

subsection (a) by stating:

Nothing in this section shall be construed as prohibiting (1) the payment

of a fee . . . (C) by a lender to its duly appointed agent for services

actually performed in the making of a loan, [or] (2) the payment to any

person of . . . compensation or other payment for goods or facilities

actually furnished or for services actually performed . . ..

12 U.S.C. § 2607(c)(1) & (2). At issue in this case is whether payment of a YSP

violates RESPA's prohibition against referral fees, or whether a YSP might satisfy

RESPA's qualification of payments for goods and facilities actually furnished or

services actually performed, which payments are not prohibited. A brief explanation

of the industry practice regarding YSPs provides helpful insight.

In the arena of retail and wholesale mortgages, banks such as Standard Federal

fund mortgage loans originated by mortgage brokers. Mortgage brokers provide

origination services and bring a borrower and a lender together to complete a loan.

The Department of Housing and Urban Development ("HUD") estimates that

mortgage brokers initiate about half of all home mortgages each year in the United

States. These brokers provide "various services in processing mortgage loans, such

as filling out the application, ordering required reports and documents, counseling the

3Although both parties to this appeal refer to these three rate terms in briefing,

our examination of the record fails to disclose that rate sheets, if any, available to the

district court actually set forth these three rates. The Glovers offer to supplement the

record with a series of Standard Federal rate sheets, an offer we have declined, but

even these papers appear to contain only a single, published base rate for each type

of loan available.


borrower and participating in the loan closing." Real Estate Settlement Procedures

Act (RESPA) Statement of Policy 1999-1 Regarding Lender Payments to Mortgage

Brokers, 64 Fed. Reg. 10080, 10081 (March 1, 1999) (hereinafter "HUD Policy

Statement I"). Brokers may also offer goods and facilities such as office space and

equipment to carry out loan-making functions. Id.

Brokers are entitled to compensation for their work and borrowers may choose

to pay these fees in a variety of ways. The fees may be paid out-of-pocket by the

borrower, they may be financed by adding the amount of such fees to the principal

balance of their loan, or they may be paid indirectly by the borrower by way of a YSP

paid by the lender to the broker. The second approach may not be available to all

borrowers, however, if their loan-to-value ratio has already reached the maximum

permitted by the lender. The payment of a YSP from the lender to the broker permits

homebuyers to pay some or all of the up-front settlement costs over the life of the

mortgage through a higher interest rate. HUD Policy Statement I, at 10081.

In determining the amount of YSP to pay, wholesale lenders such as Standard

Federal establish a wholesale price for originating loans and communicate this

pricing schedule to brokers through daily rate sheets. Rate sheets set forth the amount

that the wholesale lender will pay brokers for various types of mortgage loans, taking

into account a number of variables. These rate sheets discuss loans in terms of

"above par," "at par," and "below par."3 "The term 'par rate' refers to the rate offered

to the broker . . . at which the lender will fund 100% of the loan with no premiums

or discounts to the broker." HUD Policy Statement I, at 10081, n.1. If "the mortgage


carries a higher interest rate, the lender is able to sell it to an investor at a higher

price. In turn, the lender pays the broker an amount reflective of this price

difference." Real Estate Settlement Procedures Act 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), 66 Fed. Reg.

53052, 53054 (October 18, 2001) (hereinafter "HUD Policy Statement II").

Regardless of how the broker compensation is handled, all costs are ultimately

paid by the borrower, whether through direct fees paid to the broker, through the loan

principal or through the interest rate arranged with the lender. So, when a mortgage

broker originates a loan above par, the broker receives a YSP payment from the

mortgage lender which is based upon the daily rate sheet and the interest rate of each

loan offered by the broker to the borrower. HUD Policy Statement I, at 10081. In

this way, as earlier indicated, the borrower indirectly finances the amount of that

premium through the mortgage lender so as to avoid the necessity of a direct payment

to her broker, thereby reducing the amount of out-of-pocket expenses required at, or

prior to, closing. Id. Some consumers, like the Glovers, allege that this compensation

system is illegal under RESPA because it fosters the payment of prohibited referral

fees. Others view this practice as an option that fosters homeownership because it

reduces the amount of money required from borrowers up-front and out-of-pocket.

HUD Policy Statement II, at 53054. In any event, wholesale lenders such as Standard

Federal claim, and apparently stand ready to attempt to prove at trial, that they

ultimately receive the same compensation from each loan, whether or not a YSP is

paid as part of the transaction. This is because, they argue, the increased amounts

received from secondary investors for a higher interest rate loan are, as noted by HUD

Policy Statement II, usually passed along to the broker for services rendered.



A. Jurisdiction

Pursuant to Federal Rule of Civil Procedure 23(f), "[a] court of appeals may in

its discretion permit an appeal from an order of a district court granting or denying

class action certification . . . if application is made to it within ten days after entry of

the order." The Glovers argue that this court lacks jurisdiction to review the district

court's September 26, 2000, order because it was not an order granting or denying

class certification. We disagree.

Rule 23(a) of the Federal Rules of Civil Procedure sets forth the threshold

requirements for certification of a class. A class may be certified if:

(1) the class is so numerous that joinder of all members is impracticable,

(2) there are questions of law or fact common to the class, (3) the claims

or defenses of the representative parties are typical of the claims or

defenses of the class, and (4) the representative parties will fairly and

adequately protect the interests of the class.

In addition, to maintain a class action the court must find that one of the requisites of

Rule 23(b) is present, among them being that "questions of law or fact common to the

members of the class predominate over any questions affecting only individual

members." Fed. R. Civ. P. 23(b)(3).

On March 22, 2000, the district court held that the Glovers met their burden

under Rule 23 and defined the potential class as all people obtaining a mortgage

brokered by Heartland and financed by Standard Federal under circumstances which

gave rise to any of the type of incentive payments described in the complaint. On

September 26, 2000, pursuant to a request by the Glovers to clarify the class, the

district court recognized it did not previously define the class as the Glovers


requested. The district court concluded that a nationwide class was consistent with

the common questions of law and fact discussed in the March 22, 2000, order, and

certified a nationwide class of "all people obtaining a mortgage during the appropriate

time period, financed by Standard Federal Bank under circumstances which gave rise

to yield spread premiums or service release premiums, and brokered by any mortgage

broker pursuant to a Correspondent Agreement identical to the Correspondent

Agreement between Standard Federal Bank to Heartland Mortgage Corp." Appellant's

Addendum at 30-31 (emphasis added).

The district court order at issue does not merely deal with a clarification of the

scope and contour of the class as the Glovers profess. The September 26, 2000, order

opens up the class to individuals working through an entire network of mortgage

brokers across the nation beyond the more limited group, outlined in the March 22,

2000, order, of those individuals who obtained a mortgage brokered only by

Heartland. Clearly, as to both these newly defined class members and those described

on March 22, the September 26 order constitutes class certification. The district court

labeling the order a clarification does not change this fact.

As we have done on two previous occasions in this case, we find jurisdiction

pursuant to Federal Rule of Civil Procedure 23(f) appropriate to review the district

court order granting class certification.

B. Standard of Review

We review a district court's ruling granting or denying class certification for

abuse of discretion. Chaffin v. Rheem Mfg. Co., 904 F.2d 1269, 1275 (8th Cir.


4Notwithstanding the fact that HUD issued its Policy Statement at the directive

of a Conference Report, we apply only the standards set by legal precedent in

determining the measure of deference to give HUD's communication. The statement

that "Congress never intended payments by lenders to mortgage brokers for goods

or facilities actually furnished or for services actually performed to be violations of

. . . RESPA," constitutes only a congressional committee's post facto interpretation

of the law. Congress may not conscript agencies to legislate for it. If Congress

wishes to legislate conclusively, it must do so directly. A statement made by

Congress after the legislative process does not have the force of law and is almost

wholly unpersuasive. Reviewing courts must also be careful not to allow an agency

to create de facto new regulations under the guise of interpreting an earlier regulation.

See Christensen v. Harris County, 529 U.S. 576, 588 (2000). HUD most

appropriately expresses its concern on this matter in its 1999 Statement of Policy

when it states its own belief that "broad legislative reform . . . remains the most

effective way to resolve the difficulties and legal uncertainties under RESPA and the

Truth in Lending Act (TILA) for industry and consumers alike." HUD Policy

Statement I, at 10080. Our decision today credits HUD's Policy Statements with only

the amount of deference due an agency's interpretation of its own regulation, as

established by the Supreme Court. See Christensen, 529 U.S. 576.


C. Measure of Deference Provided HUD's Statements of Policy

In March 1999, and again in October 2001, HUD issued Statements of Policy

regarding lender payments to mortgage brokers. HUD's Policy Statement I responded

to a Conference Report on the Departments of Veterans Affairs and Housing and

Urban Development, and Independent Agencies Appropriations Act, 1999, directing

HUD to clarify its position on lender payments to mortgage brokers.4 In October

2001, HUD published Policy Statement II in order to "eliminate any ambiguity

concerning the Department's position with respect to those lender payments to

mortgage brokers characterized as yield spread premiums . . . as a result of questions

raised by two recent court decisions, Culpepper v. Irwin Mortgage Corp. and

Echevarria v. Chicago Title and Trust Co., respectively." HUD Policy Statement II,

at 53052. Policy Statement II specifically expresses HUD's disagreement with the


judicial interpretation regarding Section 8 of RESPA and the 1999 Statement of

Policy as set forth in Culpepper. Id. at 53054-55.

Whether or not we follow HUD's Policy Statements is dispositive in this case

because if we endorse the two-part test advocated by HUD, the inquiry in each case

must necessarily be made on a loan-by-loan basis, therefore eliminating class

treatment. The Glovers argue that the Policy Statements issued by HUD are contrary

to RESPA and are thus entitled to no deference.

HUD Policy Statement I sets forth a two-part test to determine whether a

payment from a lender to a mortgage broker is permissible under Section 8 of


[T]he first question is whether goods or facilities were actually furnished

or services were actually performed for the compensation paid. The fact

that goods or facilities have been actually furnished or that services have

been actually performed by the mortgage broker does not by itself make

the payment legal. The second question is whether the payments are

reasonably related to the value of the goods or facilities that were

actually furnished or services that were actually performed.

In applying this test, HUD believes that total compensation should be

scrutinized to assure that it is reasonably related to goods, facilities, or

services furnished or performed to determine whether it is legal under

RESPA. Total compensation to a broker includes direct origination and

other fees paid by the borrower, indirect fees, including those that are

derived from the interest rate paid by the borrower, or a combination of

some or all. The Department considers that higher interest rates alone

cannot justify higher total fees to mortgage brokers. All fees will be

scrutinized as part of total compensation to determine that total

compensation is reasonably related to the goods or facilities actually

furnished or services actually performed. HUD believes that total

compensation should be carefully considered in relation to price

structures and practices in similar transactions and in similar markets.


HUD Policy Statement I, at 10084.

HUD Policy Statement II sets forth, among other things, the following

clarification of the HUD test contained in Policy Statement I:

1. The First Part of the HUD Test:

Under the first part of HUD's test, the total compensation to a mortgage

broker, of which a yield spread premium may be a component or the

entire amount, must be for goods or facilities provided or services

performed. HUD's position is that in order to discern whether a yield

spread premium was for goods, facilities or services under the first part

of the HUD test, it is necessary to look at each transaction individually,

including examining all of the goods or facilities provided or services

performed by the broker in the transaction, whether the goods, facilities

or services are paid for by the borrower, the lender, or partly by both.

It is HUD's position that neither Section 8(a) of RESPA nor the 1999

Statement of Policy supports the conclusion that a yield spread premium

can be presumed to be a referral fee based solely upon the fact that the

lender pays the broker a yield spread premium that is based upon a rate

sheet, or because the lender does not have specific knowledge of what

services the broker has performed.

. . .

Whether or not a yield spread premium is legal or illegal cannot be

determined by the use of a rate sheet, but by how HUD's test applies to

the transaction involved.

HUD Policy Statement II, at 53055.

When reviewing an agency's construction of a statute it administers, a court

must first ask whether Congress has directly spoken to the precise question at issue.

5If the statute is unambiguous, as claimed by the Glovers, we think, as later

explained, any lack of ambiguity runs in the direction of HUD's construction of the

law and not the analysis advanced by the Glovers.

6Section 3500.14(b) mirrors Congress' directive in 12 U.S.C. § 2607 and states

"[n]o person shall give and no person shall accept any fee, kickback or other thing of

value pursuant to any agreement or understanding, oral or otherwise, that business

incident to or part of a settlement service involving a federally related mortgage loan


Chevron U.S.A. Inc. v. Natural Res. Defense Council, Inc., 467 U.S. 837, 842 (1984).

The legality of a YSP payment (or any other specific type of payment) to a mortgage

broker is not directly addressed by RESPA. Neither is how one deals with the

tension created by the words of Sections 8(a) and 8(c). Thus, the intent of Congress

on this issue is not expressly set forth in the statute. Therefore, under Chevron, we

must determine whether HUD's analysis as set forth in its regulation is based on a

permissible construction of the statute. Id. at 843.5

"If Congress has explicitly left a gap for the agency to fill, there is an express

delegation of authority to the agency to elucidate a specific provision of the statute

by regulation." Id. at 843-44. Agency regulations promulgated under express

congressional authority are given controlling weight unless they are arbitrary,

capricious, or manifestly contrary to the statute. Id. at 844. In the instant case, it

appears Congress did intend to delegate authority to HUD by expressly authorizing

HUD to "prescribe such rules and regulations, to make such interpretations, and to

grant such reasonable exemptions for classes of transactions, as may be necessary to

achieve the purposes of [RESPA]." 12 U.S.C. § 2617(a). HUD promulgated rules

under RESPA at 24 C.F.R. § 3500.01 et. seq., subject to notice-and-comment.

Because these rules were promulgated under the express authority of Congress and

adjudicated with apparent congressional intent to carry the force of law, they are

accorded Chevron deference. United States v. Mead Corp., 121 S. Ct. 2164, 2172

(2001). However, these regulations are not directly at issue today, as the language

of the Section 8(a) regulation issued by HUD simply mirrors that of the statute.6

shall be referred to any person." Like the statute, the regulation makes no attempt to

further define or describe the nature or character of the type of payment that would

or would not be a prohibited "referral" fee.


We are called upon today to review HUD's two Statements of Policy, which

interpret HUD's own regulations promulgated under RESPA and which set forth the

two-part test, to determine whether, or under what circumstance, a payment from a

lender to a mortgage broker is permissible under Section 8 of RESPA.

"[I]nterpretations contained in policy statements . . . which lack the force of law–do

not warrant Chevron-style deference." Christensen v. Harris County, 529 U.S. 576,

587 (2000) (citing EEOC v. Arabian American Oil Co., 499 U.S. 244, 256-258 (1991)

(measuring deference given an EEOC policy statement interpreting a statute on

Skidmore v. Swift & Co., 323 U.S. 134, 140 (1944) standards and not Chevron


In this case, however, we have a duly promulgated regulation, which has the

force of law under Chevron, but which for our purposes continues the statutory

ambiguity. It remains unstated and unclear under the regulation, as under the statute,

whether payment of a YSP to a mortgage broker does, or must, in whole or in part,

constitute an unearned fee. Thus we are not dealing with Mead, and its corresponding

line of cases, which address the issue of deference due regulations or other

congressionally authorized interpretations of a guiding statute. See Mead, 533 U.S.

218; Chevron, 467 U.S. at 842; Skidmore v. Swift & Co., 323 U.S. 134, 140 (1944)

(giving lesser agency rulings, statements, interpretations and opinions concerning

statutory meaning deference only proportional to their power to persuade given the

agency's specialized experience, investigations and available information).

We look, instead, to Bowles v. Seminole Rock & Sand Co. and its progeny for

guidance in determining what deference is due an agency interpretation of its own

ambiguous regulation. See Christensen, 529 U.S. at 588 (giving deference to an

agency's interpretation of its own regulation only if the language of the regulation is


ambiguous); Auer v. Robbins, 519 U.S. 452, 461 (1997) (giving controlling deference

to an agency's interpretation of its own ambiguous regulation unless plainly erroneous

or inconsistent with the regulation); Bowles v. Seminole Rock & Sand Co., 325 U.S.

410, 413-14 (1945) ("Since this involves an interpretation of an administrative

regulation a court must necessarily look to the administrative construction of the

regulation if the meaning of the words used is in doubt. . . . [T]he ultimate criterion

is the administrative interpretation, which becomes of controlling weight unless it is

plainly erroneous or inconsistent with the regulation."). Referring to this line of

cases, we believe that HUD's Policy Statements interpreting its own ambiguous

regulation are controlling authority unless they are plainly erroneous or inconsistent

with the regulation or the purpose of RESPA. Christensen, 529 U.S. at 588

(construing Auer v. Robbins, 519 U.S. at 462 ).

However, if Christensen does not contemplate situations, as here, where the

agency regulation does nothing more than mirror the ambiguous language of the

statute, our decision to give deference to HUD's Policy Statements remains steadfast.

See Cunningham v. Scibana, 259 F.3d 303, 307 n.1 (4th Cir. 2001) (holding that

Christensen does not apply if there is no ambiguous interpretive language in the

regulation, that is if the agency "simply repeated the statutory language in the

regulation and left its interpretation of [the statutory language] to a program [or

policy] statement," Skidmore principles apply). HUD's Policy Statements in this

instance pack sufficient power to persuade given HUD's specialized mission,

experience and broad investigation into the consumer lending market. Skidmore, 323

U.S. at 140.

In sum then, applying either Christensen or Skidmore, we find that the Policy

Statements issued by HUD reflect a reasoned view of a responsible agency which is

consistent with the statute and the regulation and which constitutes a body of

experience and informed judgment that this court may look to as determinative

authority. And, we do so.

7In their briefing and supplemental submissions in this case, the Glovers make

much of the fact that Standard Federal pays bonuses to their network of brokers as

generalized proof of prohibited payments under RESPA. However, the name given

any payment to a broker is not the important issue under RESPA. We look at the total

compensation, whatever its form. See HUD Policy Statement I, at 10084.


D. The Policy Statements

The Glovers reject HUD's analysis. In support of the district court's decision,

the Glovers argue that under the plain language of RESPA, the first inquiry is always

whether the YSP premium is payment for a prohibited referral rather than for

facilities, goods and services. If the YSP is really a referral fee, the payment violates

RESPA regardless of the fact that the broker may actually perform services. Thus,

the first inquiry, says the Glovers, focuses not on whether facilities, goods and

services were provided, but on what the payment is for.

The Glovers further argue that evidence of the nature, value and reasonableness

of facilities, goods and services provided in a particular transaction is essentially

irrelevant in this first inquiry. They assert that because the total dollar amount of a

YSP paid to a broker depends solely on the rate of interest brokered for the borrower,

and because the payment of these premiums by Standard Federal is based upon a

course of business guided by identical Correspondent Agreements, there is no need

for an individualized inquiry. Class certification is appropriate, they say, because this

evidence establishes that the YSP premium is payment for a referral, thus raising at

least a presumption of liability. These are the questions of fact that preponderate,

they contend. The Glovers allege that Standard Federal's practice focuses on a

systematic marketing program of paying repeated fees and bonuses based only on the

value and frequency of referrals without knowledge of the quantity or quality of

services provided by each mortgage broker.7

8There is, perhaps, a significant factual difference in Culpepper. There, the

class consists of "persons who . . . obtained . . . [a] loan . . . wherein the broker was

paid [presumably by the borrower] a loan origination fee of 1% or more and wherein

[the lender] paid a 'yield spread premium' to [the] mortgage broker." 253 F.3d at

1326. No such loan origination fee is required for membership in the proposed class

in this case.

9We note, however, that for this case Culpepper does not appear to be apposite

precedent. The Eleventh Circuit, in its exercise interpreting HUD Policy Statement

I, appears to have given at least some deference to HUD policy pronouncements.

But, Culpepper was considered and published prior to HUD's more recent Policy

Statement of October 18, 2001, a policy that we believe is due either Christensen or


The Eleventh Circuit has arguably endorsed at least part of this line of

reasoning in its recent decision in Culpepper v. Irwin Mortgage Corp., 253 F.3d 1324

(11th Cir. 2001), cert. denied, 122 S. Ct. 930 (2002). In Culpepper, a panel of the

circuit affirmed class certification in a similar case where mortgagors brought a class

action against a mortgage lender, arguing that the lender's payment of YSPs to a

mortgage broker violated the anti-kickback provision of RESPA. Id.8 The court

rejected the lender's contrary argument, stating "[i]f [the lender] has read the HUD

Statement correctly . . . HUD has now decided that § 8(c) deems some such referral

fees legal–that is, referral fees that are paid by lenders and that would be reasonable

service fees, if that's what they were." Id. at 1330. The Eleventh Circuit interpreted

HUD Policy Statement I, an interpretation now repudiated by HUD, see HUD Policy

Statement II, and ultimately found that "the first step in the test for liability under §

8 is not only whether the broker performed some of the services described in the

HUD Statement, but also whether the yield spread premium is payment for those

services rather than for a referral." Culpepper, 253 F.3d at 1331. The court in

Culpepper reasoned that if the purpose of the lender payment is only for referrals and

not for services, you do not get to step two of HUD's two-part test. Id. Under this

interpretation, focusing only on a purported search for the lender's intent in each case,

Culpepper found that similar questions of fact predominate, justifying class


Skidmore deference. As previously noted, the court in Culpepper reached its final

conclusion by finding HUD's two-part test "ambiguous" thus leaving room for the

court to inject its own interpretation of HUD's intent. The Eleventh Circuit has not

stated its position regarding the deference due HUD Policy Statement II. We will not

conjecture whether it will remain steadfast in its position regarding the ambiguity of

HUD's Policy Statement now that HUD has clearly stated that it differs with the

analysis made in Culpepper.


Both the Eleventh Circuit and the Glovers profess that they adopt HUD's

statement that YSPs are not "per se" illegal. HUD Policy Statement I at 10084,

Culpepper, 253 F.3d at 1331, Appellees' Brief at 64. In doing so, they advance a few

factual scenarios under which they claim a YSP payment might pass muster under

RESPA. Given the gloss the Glovers would place on RESPA, we are not persuaded

that they describe realistic examples. In the context of the residential loan industry

as it exists today, we have difficulty seeing many, if any, factual situations in which

a YSP could lawfully coexist with their contentions. Using the Glovers' interpretation

of the statute, inventive minds making clever arguments can turn virtually any

payment flowing from a lender to a broker, in connection with the placement of a

mortgage loan, into a purported payment for the unlawful referral of business.

However, Section 8(c) clashes with this result. It clearly states that reasonable

payments for goods, facilities or services actually furnished are not prohibited by

RESPA, even when done in connection with the referral of a particular loan to a

particular lender. The Glovers' approach tends to turn the interrelated sections upside

down, putting total emphasis on the prohibitory language of Section 8(a) and no

emphasis on the permissive language of Section 8(c).

HUD's Policy Statements, on the other hand, reconcile both facets of RESPA

policy. HUD requires a determination of whether goods or facilities were actually

furnished or services were actually performed and whether the amounts of the

payments are reasonably related to the value of these goods, facilities, or services.

HUD Policy Statement I, at 10084; HUD Policy Statement II, at 53054. We agree


with this approach because we believe that one cannot take a tightly focused look at

but one side of the prohibited/permitted equation. A lender's reliance on a rate sheet

to uniformly offer and calculate a YSP payable to a broker does not, without more,

mean that class certification is appropriate. Nor does it mean that you can presume

that each payment reflects payment of a prohibited referral fee simply because the

lender does not have specific knowledge of the nature and amount of service the

broker performs in conjunction with a particular loan or group of loans. HUD Policy

Statement II, at 53055. Like HUD, we doubt that many, if any, lenders are ignorant

of the fact that brokers perform many unique services during these transactions, in

addition to bringing the borrower and lender together. HUD Policy Statement II, at

53055. Indeed, the preliminary and closing papers in each transaction identify and

quantify services performed, facilities used and goods supplied. In fact, the

predominant reason lenders use brokers at all is to provide borrowers the necessary

goods, services and facilities that the lender itself chooses not to offer, for economic

or other business-related reasons.

Contrary to the Glovers' argument, HUD's two-part test is fully consistent with

RESPA. Reviewing services performed and their value on a case-by-case basis does

not run afoul of the proscription stated in Section 8(a) prohibiting payments for

referrals. Nor does it mean that you retroactively purify unlawful referral fees by

offsetting their existence against the performance of legitimate settlement services.

Indeed, the Glovers' course effectively writes Section 8(c) out of RESPA. As noted,

Section 8(c) clearly anticipates payments to individuals for goods or facilities actually

furnished or for services actually performed, and specifically excludes these payments

from the Section 8(a) proscription. 12 U.S.C. § 2607(c)(2). Nothing in RESPA

prohibits such payments in the mode of a YSP, or in any other particular form, and

HUD's test simply helps determine whether the YSP, by its existence, use and

amount, falls within or without the permissive boundaries of Section 8(c).


We reject the Glovers' claim that HUD's policy provides a self-serving

reasonability valuation system operating within a discrete mortgage lender/broker

market, a system that drowns any reasonability standard in a sea of broker-only

comparisons. This argument is unsupported. The analysis will necessarily involve

values affixed to the same or similar goods, facilities or services both within and

without the local mortgage broker industry. If total compensation paid by the lender

to the broker in a given transaction exceeds a reasonable amount for the goods,

services and facilities provided, it is likely that a RESPA violation has been

established. American courts have accurately and fairly determined reasonability in

similar situations since their inception, and they will do so in the Glovers' case, if


If HUD's step one analysis is not undertaken prior to a class-wide

pronouncement of RESPA liability, it is almost certain that at least some legitimate

Section 8(c) activities now performed by mortgage brokers will be left

uncompensated. Should this occur, the present borrower/broker/lender relationship

will disintegrate, at least for those buyers who must borrow above par in order to

finance settlement services.

Under HUD policy, the Glovers and the individual members of the proposed

class are far from unprotected by RESPA. If the case-specific inquiry establishes at

step one that no compensable services were performed in return for the YSP, the

inquiry ends and a violation is probably made out. If compensable goods, facilities

or services are provided, HUD's step two leads to a RESPA remedy if any part of the

total payment, including the YSP, proves to be excessive and, thus, an unlawful

referral fee. And, even though each RESPA violation will usually not yield a large

judgment, Congress has guaranteed legal representation under RESPA by permitting

attorneys fees and costs as part of each allowable recovery. 12 U.S.C. § 2607(d)(5).

This permits and encourages individual consumers to raise valid RESPA claims.

Accordingly, a class action is not necessary for justice to be done.


Finally, a loan-specific inquiry to determine liability under RESPA is further

supported by RESPA's own directions for a loan-specific inquiry to measure damages.

Section 2607(d)(2) of RESPA calculates damages for a violation of the act "equal to

three times the amount of any charge paid for such settlement service." The plain

language of RESPA, then, demands that there be a determination of which settlement

services are provided in connection with each real estate settlement including such

things as title searches, title examinations, the preparation of documents, property

surveys, and other potential services defined at section 2602(3). It appears, therefore,

that RESPA anticipates an inquiry into the services provided in order to determine

whether a prohibited referral occurred in the first instance, and also to determine the

amount of damages warranted, if any. This loan-specific analysis is required to

determine civil liability as well as to measure damages under RESPA.

We reject the analysis in Culpepper, and while it remains the law in the

Eleventh Circuit, we choose a different conclusion, giving due deference to HUD's

interpretations of its regulations.


We accept the loan-specific liability test promulgated by HUD, which

recognizes that YSPs may be used as a way to finance closing costs. Accordingly,

a loan-specific analysis is required in determining whether the payment of a YSP is

based upon services rendered or an illegal referral. We do not surmise that the

payment of a YSP will pass muster in each instance, or even in this case. We further

emphasize that our opinion today in no way prohibits individual plaintiffs from

pursuing their valid claims under RESPA. As noted, Congress, in its wisdom, fosters

the guarantee of legal representation under RESPA on an individual basis by allowing

for attorneys fees and costs as part of the prescribed recovery. Our only conclusion

today is that the determination must be made on a loan-by-loan basis. Class

10We have been inundated with communications from counsel in this case,

mostly submitted under the guise of court rule 28(j). Many if not most of this myriad

upon myriad of filings violate both the language and spirit of the rule. Because of the

importance of this matter to the parties and the residential mortgage industry,

however, we have examined each submission and leave to another day the question

of sanctions for this type of violation.

             A true copy.


                                   CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.

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