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DOMINGUEZ v. ALLIANCE MORTGAGE COMPANY

August 23, 2002

JUAN A. DOMINGUEZ, NOEL GARCIA, MARIA J. HERNANDEZ AND ANA K. DOMINGUEZ, PLAINTIFFS, VS. ALLIANCE MORTGAGE COMPANY AND AMERIHOME MORTGAGE CO., LLC, DEFENDANTS.


The opinion of the court was delivered by: James B. Moran, United States District Judge

MEMORANDUM OPINION AND ORDER

Plaintiffs Juan A. Doininguez, Noel Garcia, Maria J. Hernandez and Ana K. Dominguez bring suit against defendants Alliance Mortgage Company (Alliance) and Amerihome Mortgage Company, LLC (Amerihome), alleging that defendants' fee structure violates the Real Estate Settlement Procedures Act (RESPA), 12 U.S.C. § 2601 et seq. and its implementing regulations, 24 C.F.R. § 3500.1 et seq. Plaintiffs also assert state law claims against Amerihome for breach of fiduciary duty, against Alliance for inducing Amerihome's breach, and against both defendants for violations of the Illinois Consumer Fraud and Deceptive Business Practices Act (ICFA), 815 ILCS 505/2. Defendants move for summary judgment. For the following reasons, defendants' motion is granted.

BACKGROUND

When plaintiffs sought a mortgage, their real estate agent referred them to Amerihome, a mortgage broker, who arranged for an FHA-backed loan from Alliance. The total loan amount was $152,112.00. Plaintiffs paid Amerihome a "loan origination fee" of $1,498.65 and a "loan discount" of $380.28 in connection with the loan. Amerihome also received payment from Alliance, in the form of a $1,901.40 "yield spread premium."

A yield spread premium (YSP) is a payment by a lender, such as Alliance, to a mortgage broker, such as Amerihome, apart from any fees paid by the borrower. The lender establishes a par interest rate, at which it will make or purchase a loan from a class of borrowers, and informs brokers of this rate by disseminating rate sheets to the brokers on a regular basis. If the broker secures a borrower at a higher rate, the lender pays a YSP linked to the increase in the rate. The formula for computing the premium is included in the rate sheets.

DISCUSSION

We may only grant summary judgment when there are no genuine issues of material fact and the moving party is entitled to judgment as a matter of law. See Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986). We must also draw all inferences and view all admissible evidence in the light most favorable to plaintiffs. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986). This does not mean there must be absolutely no evidence supporting the non-moving party, but, rather, there is not enough to support a reasonable jury verdict. Id. at 248.

Plaintiffs advance two legal theories as to how defendants' practices violate RESPA. First, they maintain that HUD regulations impose a hard cap, 1% of the loan amount, on broker compensation, and that when combined, the origination fee, discount fee and YSP exceed this cap. And second, they assert that the yield spread premium is an illegal kickback or referral fee.

The 1% Cap Theory

HUD regulations limit the fees that mortgage brokers can charge borrowers applying for FHA-insured loans:

203.27 Charges, fees or discounts.

(a) The mortgagee may collect from the mortgagor the following charges, fees, or discounts:
(2) A charge to compensate the mortgagee for expenses incurred in originating and closing the loan, ...

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