An Atlanta appeals court decision this week may rekindle courtroom battles over the way mortgage lenders pay brokers for loans.
The U.S. Court of Appeals for the 11th Circuit on Monday overturned a decision in Culpepper v. Inland Mortgage Corp., a case originally hailed by lenders as a victory in the string of suits related to the Real Estate Settlement Procedures Act, or Respa.
At issue are the fees, called yield spread premiums, that lenders pay brokers for loans. Brokers receive higher fees for higher rate loans, a practice the court found to be in violation of Respa.
"Just when you thought it was safe to go back in the water," these suits are a problem again, said Larry Platt, an attorney with Kirkpatrick & Lockhart, Washington.
Last year at this time, more than a dozen mortgage lenders were faced with Respa-related suits that charged them with paying illegal yield spread premiums.
The 11th circuit court-which governs Florida, Georgia, and Alabama- found, in part, that "the yield spread premium Inland paid ... was a prohibited referral fee under Respa." The opinion also "vacated the district court's dismissal of class claims," indicating that the suit should be reconsidered for class certification.
"Basically, the judge rejected the industry's argument and accepted almost verbatim the plaintiff's," Mr. Platt said.
But lenders should not panic, the Mortgage Bankers Association said. "Consider the opinion in context. This in no way represents a final judgment," said Paul Reid, executive director of the association.
Some lawyers said that the opinion oversteps the court's bounds.
"It takes into consideration issues that weren't before the court," said William E. Cumberland, general counsel for the MBA.
The opinion comes a crucial time for mortgage lenders, he said.
"Mortgage lenders are already operating above capacity. It would be easy for them to say 'I don't know what this means,' and just decide not to do business" in the states that the 11th circuit governs.
The Department of Housing and Urban Development, which writes Respa regulations, historically has provided guidance for lenders on such matters.
After the latest court ruling, "the pressure has increased for HUD to take meaningful action to make ground rules," said Andrew L. Sandler, attorney for Skadden, Arps, Slate, Meagher & Flom in Washington.
But many involved are not counting on the department to step in.
"I think HUD is basically irrelevant at this point," Mr. Platt said. "It would have been nice for them to have said something useful."
