National law, different interpretation leaves some paying more under RESPA
There is a good piece up on the Star Tribune from yesterday on the divergent interpretations of the Real Estate Settlement and Procedures Act (RESPA), the law the controls real estate closings, and specifically, the charges lenders impose on the buyer and seller:
That sharp divergence in the interpretation of federal law is the result of conflicting federal appellate court decisions about markups, which can add hundreds of dollars of extra costs to a home purchase. Late last year, the issue appeared to be headed for final resolution by the Supreme Court after an appellate court in New York ruled against giant Wells Fargo Mortgage Corp. in a markup class-action case.
But now Wells Fargo has decided not to appeal to the highest court and intends instead to fight the plaintiffs at the district court level. A spokesman, Alejandro Hernandez, declined to discuss why the company chose not to seek a nationwide resolution.
The plaintiffs in the New York case, homeowners from Brooklyn, alleged that Wells Fargo, one of the country’s highest-volume lenders, routinely marked up fees to its customers without adding extra services to justify the surcharges. For instance, according to the suit, Wells Fargo contracted for loan origination documents from outside vendors that cost the company $20 to $50, then charged the charges to $150 to $300 at settlements.
The plaintiffs also alleged that Wells Fargo marked up “automated underwriting” fees charged by mortgage investors Fannie Mae and Freddie Mac. Rather than simply passing along Fannie’s or Freddie’s $20 underwriting fees, according to the suit, Wells Fargo charged borrowers up to $300 for underwriting.
Fargo won at the district court, but lost in the Second Circuit. Now, rather than risk their markups across the country, they have decided to drop their effort to take the case to the Supreme Court. The article provides this breakdown:
Here’s the current lineup of the federal court circuits on markups, and where that leaves you as a consumer: If the property you are buying or refinancing is located within the 4th, 7th, or 8th appellate circuits, lenders and other settlement service providers are free to mark up your fees with no fear of federal constraints. The states within those circuits include Minnesota, Wisconsin, Iowa, North and South Dakota, Illinois and Indiana. There might be state consumer protection statutes that protect you against fee-gouging or deceptive marketing practices, but no federal law.
If you are buying or refinancing in the 11th or 2nd circuits, lenders and other service providers are prohibited from markups that are not accompanied by additional, valuable services. The states within those circuits are Florida, Georgia, Alabama, New York, Connecticut and Vermont.
Link.
