A case brought against Quicken Loans alleging the company violated the Real Estate Settlement Procedures Act by charging “loan discount fees,” could have implications for all lenders if the Supreme Court decides RESPA is ambiguous and is in need of change.
The issue is not a new one; it has been discussed in various courts with the Department of Housing and Urban Development taking the position that any unearned fee is prohibited by Section 8 of RESPA.
“To split an unearned fee or not to split an unearned fee in order to violate the Real Estate Settlement Procedures Act (RESPA) – that is the question,” writes international law firm K&L Gates’ Phillip Schulman in a financial services alter email.
The Supreme Court heard arguments last week in the case against Quicken, to determine the legality of mortgage lenders adding fees to closing costs for services that plaintiffs claim were not provided. Three Louisiana couples brought the case before the Court, with one claiming Quicken charged a $5,000 loan discount fee. The couples claim they didn’t receive a lower interest rate in exchange for the additional fees.
“Does the Supreme Court strictly construe the language of the provision, as lenders and settlement service providers contend, or does the Court accept Petitioner’s and the government’s claims that deference should be shown to an agency’s (HUD’s) interpretation of the meaning and intent of the Act?” Schulman writes.
Quicken argues the fees are not covered under RESPA because they were not split with anyone else and that the fees were included in the pricing of the loans.
“Months after the loans closed, the clients decided they wanted to pay less than they had agreed, so they sued Quicken Loans,” according to Quicken’s position. “In separate lawsuits in Louisiana State Court, they falsely claimed the company had imposed charges without performing services in return, claiming the fees were ‘unearned.’ Missing from their suit was any claim that any of the loan discount fees were divided or shared among multiple providers. They also never argued that the loans they obtained were unreasonably priced.”
A New Orleans most recently ruled in favor of Quicken in the case, saying the rule doesn’t apply to fees that are not split.
A change to RESPA would mean change to the way it applies to reverse mortgages, most likely, said Bill Trask senior vice president and chief counsel for Security One Lending.
“On the RESPA front, any change will generally have an equal effect on forward and reverse mortgages,” he said.
RESPA was signed into law in 1974 and now falls under the authority of the Consumer Financial Protection Bureau. A decision from the Supreme Court is expected before its session ends in June.
Written by Elizabeth Ecker