Several recent court decisions may help stem a flood of class actions that has threatened mortgage lenders for the past two years.
Most recently, last Friday, Judge Albert Bryan of the U.S. District Court for the Eastern District of Virginia denied class certification to a suit filed against Crestar Mortgage and Saxon Mortgage, both of Richmond, Va.
The court "found a lack of typicality and commonality" among the mortgages that were in question, the judge's written order said.
The move effectively shuts down one high-profile suit that was typical of many filed against mortgage lenders in recent years. These suits allege that the lenders' method of compensating brokers was illegal under the Real Estate Settlement Procedures Act.
The payment of yield spread premiums-bonuses to brokers who get borrowers to take out loans at higher interest rates - is illegal under that law, plaintiff attorneys argue.
On July 2, Judge William Young denied class certification and summary judgment in a case filed against Crossland Mortgage Corp., Salt Lake City. The 18,000 loans in question must be evaluated individually, Judge Young noted, citing a recently published Department of Housing and Urban Development booklet.
"So long as the ultimate combination of compensation is reasonable, the broker and the borrowers are entitled to negotiate the loan that best fits the needs of the transaction at issue," he wrote.
Judge Young also denied class certification and a motion for summary judgment in a similar case filed against Accubank Mortgage Corp., Dallas.
And on June 24, Judge Kenneth L. Ryskamp granted summary judgment in favor of Target Mortgage Corp. in a yield spread premium class action filed against the lender.
Higher payments for higher-rate loans are not classified as prohibited "referral fees" under the settlement act, Judge Ryskamp ruled. He refused to allow the case to proceed as a class action.
The next day, Judge Ryskamp also refused to allow a class action to proceed against Weyerhaeuser Mortgage Co., Woodland Hills, Calif., now WMC Mortgage.
"The issue of the services provided by the broker to the borrower would differ in each case," he wrote. "If a class were certified, individual issues would engulf the entire litigation."
In order to curtail further litigation, the National Association of Mortgage Brokers recently published a borrower disclosure agreement that is expected to be adopted by its members.