Lenders and mortgage brokers are looking to the Department of Housing and Urban Development for help against a wave of lawsuits that could impose radical change on the mortgage industry.
Seven lenders - including Norwest Mortgage Inc., Des Moines; Long Beach Mortgage, Orange, Calif.; and Accubanc Mortgage Corp., Dallas - have been accused in separate complaints of making illegal payments to brokers.
The latter say that, without immediate intervention by HUD, the lawsuits would deter lenders from using brokers, who bring in about half of all loans.
In a letter last week to Nicolas Retsinas, HUD'S assistant secretary for housing, Thomas W. Becker, head of a broker trade group, pleaded for an interim rule to protect against further suits.
Lender representatives agreed. "It's been eight years since HUD first proposed an exemption for mortgage brokers," said Larry Platt, a lawyer at Kirkpatrick & Lockhart, Washington, who represents lenders in fair-lending cases. HUD tried "to get all the parties together, but now it's time for them to take responsibility and write a mortgage broker rule."
Class-action status has been sought in all seven cases, said Ed O'Brien, the Nashua, N.H., attorney who filed the complaints. Plaintiffs could easily number in the hundreds of thousands, he said.
At issue are the fees - often dubbed yield-spread or service-release premiums - that mortgage lenders pay to brokers from whom they buy loans. According to Mr. O'Brien, these fees violate the Real Estate Settlement Procedures Act, or Respa, if the borrower has already paid a fee to the broker.
"I just reread Respa," said Mr. O'Brien, explaining the lawsuits. The challenged fees violate the law because they are not compensation for any service performed by the broker, he said. The fees range from $1,000 to $3,000.
Filed in U.S. District Court, Boston, the suits are a simplified version of kickback complaints filed in the past. The cleaner complaint should shorten the time it takes to get a decision, lawyers on both sides said.
Mortgage brokers and lenders maintain that the suits spotlight a chronic problem: Section 8 of Respa, which governs fees paid to brokers, is just not clear enough.
Saddled with the task of reconciling more than 20 different interests, a HUD-sponsored rulemaking committee failed this year to reach any agreement.
"We're going to have to make our own decision," said Sarah Rosen, a special assistant at HUD. The department has been sidetracked by other legislation, she said.
Mr. O'Brien said he is unlikely to be deterred even if HUD does step in. If the lenders "defeat us on Respa," he added, "I can guarantee them that I will file state court class actions in every state of the nation."
