The partnership between mortgage lenders and loan brokers - a mainstay of the modern mortgage market - is suddenly under siege in the courts.

More than 10 class actions are pending against lenders for the fees they pay brokers to bring in business. And in one case, a federal court last week came down firmly against the lenders.

A U.S. district court judge in Alexandria, Va., said consumers were being handed a "bad deal" when lenders pay brokers a common type of fee. He made the comment in rejecting a request for a dismissal of a class action against two lenders.

The ruling comes as banks and other lenders are relying heavily on brokers for new loans. By some estimates, nearly half of all mortgages are now made through brokers. Lenders are turning to brokers in response to shrinking profits on the loans they make directly to customers.

The complaints take aim at fees that lenders pay brokers for loans with above-market interest rates. Lenders pay these "yield spread premiums" in more than half of all transactions with brokers, experts say.

The mortgage industry is clearly alarmed by the class actions.

"They're growing like mushrooms in a monsoon," said Marc C. Smith, president of Crestar Mortgage. "This is the most substantive risk impacting housing finance today."

Crestar was one of the lenders targeted in the Virginia class action.

Ultimately, the burgeoning complaints could force lenders to cut brokers out of the lending chain, experts say. At the very least, a successful suit could sharply reduce broker earnings and cost lenders millions of dollars in restitution to borrowers.

Judge Albert Bryan of U.S. District Court in Alexandria, said Friday that fees paid by lenders to mortgage brokers for securing loans above market rates are "a referral, prohibited" by the Real Estate Settlement Procedures Act.

Yield spread premiums are by their nature "not compensation for services actually performed" for borrowers, Judge Bryan wrote.

Lawyers representing Crestar and Saxon Mortgage Inc. said the judge's refusal to dismiss the case, while a blow, was not the final word on the matter. Crestar will "vigorously defend" against it, said Leonard Bernstein, an outside lawyer representing Crestar.

But Daniel A. Ragland, one of the lawyers representing the borrowers, said he was confident the judge would not side with the lenders.

"This will be a big case," said Mr. Ragland, a partner with Robins, Kaplan, Miller & Ciresi, Atlanta. It will demonstrate that "yield spread premiums and the payment of them are illegal."

Damages could extend into the millions of dollars as more borrowers join the complaint, he said. Lawyers for the borrowers have said that they will ask for at least triple the value of the premiums borrowers were charged, in addition to legal fees.

The case could be the first of its type to go to trial. Until now, lenders facing similar suits have elected to settle with borrowers, industry observers said.

Crestar says it may dig in its heels. "We could indeed be the first" to go all the way and receive judgment from a federal court, said Mr. Smith. He said complaints against all the lenders are casting a pall over the industry.

Borrowers will ultimately pay for the raft of litigation as lenders are forced to pass those costs along in the form of higher fees, Mr. Smith maintained. "If a remedy isn't found and legal context for housing finance set, it's going to have adverse consequences for every homebuyer."

Mortgage lenders and their lawyers are clamoring for regulatory relief from these types of complaints. They have appealed to the Department of Housing and Urban Development and Congress. The industry has argued for several years that the Respa rules are too vague to avoid wave after wave of legal challenge.

"HUD has spent eight years thinking about this issue; the judge in Virginia probably spent 80 minutes," said Larry Platt, a lawyer who represents lenders. "It's absolutely critical that HUD come out and say payments to mortgage brokers are legal under Respa."

HUD's clarification of the broker compensation rule was originally due out in the fall of 1996; the rule is now slated to be published early this year.

In addition, HUD is working on a "statement of policy," along with the Office of Management and Budget, to clarify a position on fees paid to mortgage brokers.

But according to Judge Bryan, the government's actions are too late to stop the Crestar-Saxon trial. "The court is unwilling to await action which may result from (HUD's) rulemaking procedure," the decision said. In addition, the judge said, any HUD action would not likely apply to the transactions at issue.

All the same, the industry is betting the HUD's quick release of a statement will help lenders' cause.

"Our members are at risk of being held liable in various jurisdictions by federal judges who lack any formal guidance from the appropriate interpretive agency," said Warren Lasko, executive director of the Mortgage Bankers Association in a December letter to HUD Assistant Secretary Nicholas Retsinas.

According to Sarah Rosen, who represents Mr. Retsinas, HUD's statement will be completed "as soon as possible." What the policy statement will say is "still being discussed," she said.

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