| YSPs Survive State Appellate Court
California’s Fourth District affirms summary judgment, dismissing borrower claim July 11, 2003 By ANNE LINEBERRY
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| An appeal to reinstate a lawsuit which claimed certain yield-spread premium (YSP) payments violated compliance with U.S. Department of Housing and Urban Development (HUD) regulations has been denied by a California court.
Summary judgment was issued by a San Diego court in Byars v. SCME Mortgage Bankers, Inc., in favor of the defendant. Plaintiff Douglas S. Byars appealed the case to the Fourth Appellate District, Division One, which issued an affirmation of the summary judgment early last week. At issue was a YSP paid to Byar’s mortgage broker by SCME. According to the court’s affirmation, Byar took out one loan from one mortgage broker and then later a second loan from Allstate, both of which were subsequently purchased by SCME. According to the court document, Byar claimed that the YSP paid to Allstate violated HUD regulations concerning his loan, which was insured by the Federal Housing Authority. The court quoted HUD regulations concerning loan origination fees, including this part of 24 Code of Federal Regulations: “(e) Nothing in this section will be construed as prohibiting the mortgagor from dealing through a broker who does not represent the mortgagee, if he prefers to do so, and paying such compensation as is satisfactory to the mortgagor in order to obtain mortgage financing.” In its ruling, the court differentiated between direct and indirect cost to the borrower, concluding that because the YSP is paid by the lender, it falls outside the regulations governing costs to the mortgagee. The appellate court concluded that “The payment of a YSP does not violate the HUD regulation imposing a 1 percent cap on loan origination fees.” Also, the court took quoted relevant regulations governing YSPs and the requirement that they be reasonable compensation for services rendered. They concluded, “We also note the undisputed evidence in this case establishes that substantial services were provided by both the mortgage brokers to Byars and that Byars presented no evidence or argument to support a claim that as to his particular loans the total compensation paid to the brokers was unreasonable in light of the amounts normally charged for similar services in similar transactions in his area. Thus, he has not established that the YSPs in his particular case were improper.” SCME was awarded costs for the appeal. |
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Anne Lineberry is MortgageDaily.com‘s editor. She previously worked as an online editor/producer for DallasNews.com and on the Metropolitan desk for the print edition of The Dallas Morning News. Email Anne at AnneLineberry@MortgageDaily.com |
