Court Opinion

ID: 9495093
Source: CourtListenerOpinion
Date Created: 2023-08-05 15:54:07.016898+00
Date Added: 2024-06-11T17:56:48.290585
License: Public Domain

KLEINFELD, Circuit Judge,
dissenting:
There’s no avoiding a circuit split.1 I agree with the Eleventh Circuit and respectfully dissent.
The problem with treating the “yield spread premium” as payment for services rendered to the borrower, to be evaluated for reasonableness in each individual case, is that the relationship between the amount of the premium and the value of the services is entirely fortuitous. Be*1015cause the yield spread premium is calculated purely by the extent to which the borrower’s interest rate is above par, sometimes it will be what the broker’s services are worth, but only by chance. It’s like a stopped clock that shows the right time twice a day, but the clock doesn’t measure the time, and the yield spread premium doesn’t measure the value of services. Indeed, the higher the interest rate the broker’s client pays, the bigger the yield spread premium the broker gets. This makes the premium tend to be inversely proportional to the value of the services to the borrower. Whether the amount approximates the value of services for Schuetz or not, she should have been allowed to go forward with her class action, because it is precisely the fortuitousness that makes the yield spread premium violate RESPA.
RESPA prohibits “kickbacks” by lenders to mortgage brokers. I see the phrase “yield spread premium” as an obfuscatory way of avoiding calling a kickback a kickback. A kickback is “a usually secret rebate of part of a purchase price ... to the one who directed or influenced the purchaser to buy from such seller.”2 It is a payment by a third party to an agent to act on behalf of the third party rather than the principal.3 The home buyer hires a mortgage broker to shop for a good loan for her, but the broker takes $500 from a lender to steer the buyer to the lender, if the buyer can be persuaded to sign a loan with interest above par. This is how the “yield spread premium” is calculated. The measure has nothing to do with how much work the broker does. Instead, it is based on one thing: how far above par the interest rate is.
Conceivably, the yield spread premium could be good policy to promote home ownership, as HUD4 and the majority suggest.5 The theory would be that some home buyers might not be able to get their loans if they have to pay the broker’s reasonable fee up front for doing all the work of putting them together with a lender, and the “yield spread premium” lets them roll the fee into the financing and pay it over the term of their mortgage, perhaps twenty or thirty years. But Congress is no more bound by the “law and economics” school than by “Mr. Herbert Spencer’s Social Statics.”6
• There are several problems with vindicating the yield spread premium on this theory that thé yield- spread premium is a means of, in practical economic effect, .financing closing costs. One is that Congress didn’t enact it. It-prohibited kickbacks whether they work out as good economics or not.7 The- second is that the record doesn’t support it. No evidence has been shown to us that the yield spread premium offsets foregone closing costs. Schuetz was charged closing costs anyway, and it was not demonstrated that they should have been higher to compensate the broker, or that the yield spread premium capitalized the value of any inadequacy of *1016the closing costs she paid compared to the value of the broker’s services.
Third, Congress may have been right to reject kickbacks as a matter of economics. The yield spread premium doesn’t necessarily roll over the amount of the broker’s reasonable fee into the loan and capitalize that portion of the fee as the yield spread premium fee paid by the lender to the broker. The HUD test merely requires that the resulting closing costs be “reasonably related to the value of the goods or facilities that were actually furnished or services that were actually performed,”8 but this does not require that the yield spread premium be subtracted from the closing costs, so the borrower may not actually benefit from the increase in her interest rate. New but the most alert and aggressive borrowers are likely to spot the obscure “yield spread premium” charge on their closing statement, obtain and comprehend an accurate and coherent explanation from the broker’s employee of what it means, and leave in a huff if they don’t want to pay the extra interest. Both its obscurity of meaning and its relative size, perhaps a few hundred dollars, of closing costs in the thousands, on a five or six figure loan, may give Congress a reason to protect buyers from it.
It is tempting to defer to HUD anyway because of its expertise, but I do not think we can properly defer to HUD’s interpretation. First, the yield spread premium is a kickback, and kickbacks are expressly prohibited by the statute, which says that “[n]o person shall give and no person shall accept any ... kickback.”9 That express language cannot be interpreted away. RE SPA does create several exceptions to its expansive reach, including the most arguably applicable: an exception for “(1) the payment of a fee ... (C) by a lender to its duly appointed agent for services actually performed in the making of a loan.”10 As discussed above, the yield spread premium has no relation to the services actually performed by the mortgage broker. The yield spread premium is not within RESPA’s explicit exceptions.
Congress did give the HUD Secretary the power to exempt:
such other payments or classes of payments or other transfers as are specified in regulations prescribed by the Secretary, after consultation with the Attorney General, the Secretary of Veterans Affairs, the Federal Home Loan Bank Board, the Federal Deposit Insurance Corporation, the Board of Governors of the Federal Reserve System, and the Secretary of Agriculture.11
Thus, when a conference committee12 told HUD to decide whether yield spread premiums were consistent with RESPA, HUD should have followed the procedure prescribed by the statute. It did not. The interpretations it promulgated were not regulations. Moreover, the Secretary did not consult with the other executive offices, such as the Secretary of Veterans Affairs, with whom the statute required consultation. HUD did not properly exempt yield spread premiums under RES-PA.
*1017RESPA also creates a safe harbor. It states that
(a) The Secretary is authorized to prescribe such rules and regulations, to make such interpretations, and to grant such reasonable exemptions for class'es of transactions, as may be necessary to achieve the purposes of this Act.
(b) No provision of this Act ... shall apply to any act done or omitted in good faith in conformity with any rule, regulation, or interpretation thereof by the Secretary or the Attorney General 13
Where a defendant relied on HUD’s rule, regulation, or interpretation of RESPA, he or she would not be liable. There is no rule or regulation at issue here. Assuming HUD’s 1999 and 2001 interpretations could provide safe harbors for subsequent yield spread premium charges, they could not here, because Schuetz closed on her mortgage and Banc One received its kickback in 1997. Because Banc One could not have relied on the then-nonexistent interpretations, it cannot claim a safe harbor under the statute.
The majority relies on Barnhart v. Walton14 and United States v. Mead Corp.15 for the proposition that “the fact that the Agency previously reached its interpretation through means less formal than ‘notice and comment’ rulemaking does not automatically deprive that interpretation of the judicial deference otherwise its due.”16 However, where the statute is unambiguous, and the intent of Congress is clear, as it is here — “[n]o person shall give and no person shall accept any ... kickback”17 — there is no occasion for Chevron deference,18 and we need not reach the question of whether HUD’s policy statements are formal enough to merit Chevron deference in the absence of notice and comment rulemaking.

. Compare Glover v. Standard Federal Bank, 283 F.3d 953 (8th Cir.2002) with Culpepper v. Irwin Mortgage Corp. (Culpepper III), 253 F.3d 1324 (2001).

. Webster’s Third New International Dictionary (1981).

. Restatement (Second) of Agency § 391 (1984).

. See Real Estate Settlement Procedures Act Statement of Policy 2001-1: Clarification of Statement of Policy 1999-1 Regarding Lender Payments to Mortgage Brokers, and Guidance Concerning Unearned Fees under Section 8(b), 66 Fed.Reg. 53052 (Oct. 18, 2001).

. See Majority at 1013.

. See Lochner v. New York, 198 U.S. 45, 75, 25 S.Ct. 539, 49 L.Ed. 937 (1905) (Holmes, J„ dissenting).

. 12 U.S.C. § 2607(a)("[n]o person shall give and no person shall accept any ... kickback”).

. Real Estate Settlement Procedures Act Statement of Policy 1999-1 Regarding Lender Payments to Mortgage Brokers, 64 Fed.Reg. 10080, 10084 (March 1, 1999).

. 12 U.S.C. § 2607(a).

. 12 U.S.C. § 2607(c).

. Id.

. See Conference Report on the Departments of Veterans Affairs and Housing and Urban Development, and Independent Appropriations Act, 1999, H.R. Conf. Rep. No. 105-769, 105th Cong., 2d Sess. 260 (1998). Where the Majority Opinion says "Congress” told HUD to do this, it refers to this conference committee report, not an act of Congress. See Majority at 1009-10.

. 12 U.S.C. § 2617.

. - U.S. -, 122 S.Ct. 1265, 152 L.Ed.2d 330 (2002).

. 533 U.S. 218, 121 S.Ct. 2164, 2173, 150 L.Ed.2d 292 (2001).

. Barnhart, - U.S. at -, 122 S.Ct. at 1271.

. 12 U.S.C. § 2607(a).

. Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 842-43, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984); see also Barnhart, - U.S. at -, 122 S.Ct. at 1269.