HUD Freezes Up as 4 in House Oppose Policy to Legitimize Paying Yield

Mortgage lenders looking to Capitol Hill for relief from the flood of broker payment-related class actions may be in for a disappointment, judging by recent events.

In a letter to Department of Housing and Urban Development Assistant Secretary Nick Retsinas, four members of Congress expressed their concern over a policy statement on broker payments that the department has been drafting.

The letter said, "We do not believe that a consumer receives any legitimate service when a mortgage broker, who the customer considers to be his or her agent, steers that individual to a higher-priced loan ... this situation should not be tolerated under the Real Estate Settlement Procedures Act.

"If the policy statement either permits or could be interpreted to sanction these fees and thus undermine legitimate lawsuits, the statement will do a disservice to consumers."

The letter, dated Jan. 29, was signed by Reps. Henry B. Gonzalez, D- Tex.; John J. LaFalce, D-N.Y.; Bruce F. Vento, D-Minn.; and Joseph P. Kennedy 2d, D-Mass.

Mortgage industry professionals have hoped that the HUD statement would legitimize the common practice of paying brokers fees for securing higher- rate loans.

These fees, known as yield spread premiums, have come under scrutiny after a string of class actions and, most recently, a ruling by a federal judge in Alexandria, Va., declaring them illegal. The order denied dismissal of a class action brought against Crestar Mortgage Corp. and Saxon Mortgage Corp., both in Richmond, Va.

HUD has reconsidered publishing its policy statement on the issue, the housing agency said. The statement was due out last week.

"We were about to publish it," said Sarah Rosen, a HUD spokeswoman on issues related to the Real Estate Settlement Procedures Act, or Respa. But HUD has decided to "step back and think about whether or not it makes sense" because "attention to the issue has changed."

A spokeswoman for Sen. John Warner, R-Va., said he would not be sponsoring a drafted Respa Class Action Relief Bill. Mortgage industry professionals have been searching for someone on Capitol Hill to support the proposed legislation, which would put a moratorium on pending class actions related to yield spread premiums.

Meanwhile, the law firm of Reed, Smith and McClay, which represents Crestar Mortgage, has filed a motion to reconsider in U.S. District Court in Alexandria.

"It's an attempt to clarify what happened" in the judge's earlier ruling, said Leonard Bernstein, a Reed Smith lawyer representing Crestar.

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