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Citicorp Class Action Settlement Not Expected to Impact YSPs

Citicorp Class Action Settlement Not Expected to Impact YSPsSchneider v. Citicorp settlement worth estimated $7.7 million

April 2, 2004


Industry observers say a federal court’s recent approval of a settlement in a class action suit involving yield spread premiums (YSPs) probably won’t have much impact on mortgage brokers and wholesalers.

The case, Schneider v. Citicorp Mortgage, Inc., filed in federal district court in New York, involves allegations that Citicorp Mortgage, Inc., now known as Citimortgage, Inc., violated the Real Estate Settlement Procedures Act (RESPA) and state consumer protection statutes in connection with their payment of YSPs to mortgage brokers. The fees are commonly paid to mortgage brokers by lenders after delivery of a new home loan that carries an interest rate above the lender’s “par” or standard posted rate.

The Schneider settlement — with an estimated value of $7.7 million — provides for coupons worth $100 against the cost of obtaining a new first mortgage directly from Citicorp through its telesales channel. The coupon must be used within two years and cannot be redeemed in conjunction with any other offer or promotion. The 77,000 class members may only redeem one coupon in connection with any single loan. The coupons are not transferable at public sale or auction.

Michael Agoglia, a partner with Morrison and Foerster, said he thinks the settlement should “rate as nothing more than a blip on the radar screen for brokers and lenders.” It would not be feasible for plaintiffs’ attorneys to seize upon this settlement and try to use this as a means to create settlements in the future because problems with certifying a class still exist and because in every instance where a case went to a judge or jury, the defendant won, he said. Agoglia said the Citicorp case is an “anomaly” because the corporate giant settled the case, something that hasn’t been done in recent times.

“I don’t think this creates a new market for these types of class actions because the classes are still uncertifiable. The cases really are dead as class action suits,” he said.

A.W. Pickel III, President of the National Association of Mortgage Brokers, said he wasn’t sure how effective the coupons would prove to be for consumers and that approval of the settlement shouldn’t create any changes for mortgage brokers.

The Mortgage Bankers Association of America could not provide a response by press time.

YSPs enable mortgage brokers to offer their customers lower out-of-pocket fees in exchange for a higher interest rate. Critics, however, say the fees allow unsuspecting borrowers to pay higher mortgage fees than they should and that groups of minorities often pay the YSP, in addition to excessive fees — in so-called predatory lending situations.

Lisa D. Burden is’s legal analyst and holds a law degree from the University of Maryland. She is currently a freelance journalist who previously wrote for Institutional Investor publications and the Baltimore Daily

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