It is common practice for people taking out a home mortgage loan to pay “points,” which are based on a percentage of the overall loan amount. But the expectation is that the lender will reduce the borrower’s interest rate over the life of the loan. In this case, the Freemans secured a mortgage loan from Quicken and were charged $980 for a “loan discount fee” (the points), but Quicken did not provide the Freemans and other borrowers the discounted rate they paid for. Through such fraudulent practices, Quicken received hundreds or thousands of dollars in ill-gotten fees from each borrower.
The question for the Supreme Court is how to interpret RESPA, which prohibits kickbacks and other abuses in the mortgage industry. Here is the key language in the statute:
No person shall give and no person shall accept any portion, split, or percentage of any charge made or received for the rendering of a real estate settlement service in connection with a transaction involving a federally related mortgage loan other than for services actually performed.The Freemans argue that the Act was intended to forbid unearned fees, regardless of whether a third party was involved in the improper fee arrangement. Quicken argues that the law only prohibits lenders from receiving an unearned fee when that fee is divided with a third party in the form of a kickback. The Fifth Circuit agreed with Quicken, ruling that there was no violation of the Act if an unearned fee is charged by a single party and there is no third party taking a share.
The Circuit Courts are divided on this issue, with the Fourth, Fifth, Seventh and Eight Circuits limiting the Act to third party kickbacks and the Second, Third and Eleventh Circuits believing that the Act applies to all unearned fees. The Department of Housing and Urban Development supports the interpretation that the statute should apply to all unearned fees. The Solicitor General has filed a brief supporting the Freeman’s petition for certiorari.
This is the second RESPA case on the Corporate Court’s docket this year. The other case is First American Financial Corp. v. Edwards, which threatens to undermine a host of laws that protect consumers by awarding damages when corporations violate them.
If the Court sides with Quicken, it will allow mortgage lenders to cheat homebuyers out of hundreds or thousands of dollars without giving them anything in return.