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Greetings!
As you may know, I have lectured
extensively and written many articles relating to the Yield Spread
Premium (YSP).
And I will continue to track issues involving the YSP.
Here are some of my recent
articles:
- Service Release
Premium vs Yield Spread Premium: Match or Mismatch?
- Saving the
Yield Spread Premium
- Yield Spread
Premiums: Compensation or Kickback?
During the course of this
multi-year, ongoing review, I have been following litigation that
affects the YSP.
Just such litigation that has national implications is the
recent decision on November 30, 2010 by the Louisiana
Supreme
Court, which held that the YSP is excludable from the Home
Ownership and Equity Protection Act (HOEPA) calculation.
On one side was The Bank of New York (Bank) and on the other side
was Kathleen Johnson Parnell (Parnell) along with amici curiae
such as the National Consumer Law Center, Center for Responsible
Lending, and the Southeastern
Louisiana Legal Services.
At risk was the interpretation of the FRB's Official Staff
Commentary to the Truth in
Lending Act as well as a public attempt to portray the lender in
the worse possible light.
I thought you might find this recent decision of interest.
Best wishes,
Jonathan
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Overview
The Louisiana Supreme Court held that a YSP paid by a lender to a mortgage
broker is not part of the "total points and fees payable by the
consumer at or before closing," within the meaning of 15
U.S.C. � 1602(aa)(1)(B) of HOEPA.
To quote the ruling itself: "Because the YSP in this case
was paid by the lender not the borrower/consumer, the YSP is not
included in the calculation for determining the applicability of
HOEPA."
The Court used the Truth In Lending Act as its source and relied
on a provision in the Federal Reserve Board's Official Staff
Commentary of Regulation Z to find that mortgage broker fees which are
not paid by the consumer are not included in the HOEPA "points and
fees" calculation.
Indeed, the Court cited the Dodd-Frank Wall Street Reform and
Consumer Protection Act (2010) in its amending of 15 U.S.C. �
1602(aa)(1) replacing "points and fees payable by the consumer at
or before closing" with "points and fees payable in connection with
the transaction."
The Court decided that "the
YSP in this case was not payable [by the consumer] at or before
closing as required by the applicable version of 15 U.S.C. �
1602(aa)(1)(B)."
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Some Case Facts
Fact Pattern
1) 2001: Kathleen Johnson Parnell (Parnell) executed an adjustable
rate promissory note secured by her home.
2) Loan was originated through a mortgage broker.
3) HUD-1 Settlement Statement stated that the lender paid the
mortgage broker a YSP in the amount of $1,264, which was paid
outside closing.
4) 2003: Parnell attempted to rescind the security interest under
the Truth In Lending Act claiming:
4-A) that her loan was governed by HOEPA (because points and fees
exceeded 8% of the total loan amount), and
4-B) that she had not been given the requisite disclosures.
Dispute
1) Parnell's rescission demand was denied because the threshold
requirement of HOEPA was not met, being the total amount of points
and fees of only 6.7%.
2) The difference between these calculations rested on the
inclusion of the YSP.
Litigation
1) Parnell defaulted on her note.
2) The Bank filed a petition for executory process seeking to seize
and sell her home.
3) Parnell filed a petition to suspend the seizure and sale of her
home, alleging, among other things, a violation of HOEPA for
failing to provide statutorily-required disclosures.
4) The Bank filed a motion for summary judgment, seeking the
dismissal of all claims asserted by Parnell primarily on the basis
that Parnell's loan was not subject to HOEPA because a YSP paid by
a lender is not included in the points and fees calculation.
5) Parnell opposed the Bank's motion arguing that the YSP was
ultimately paid by her over the life of the loan and that "all
compensation paid to mortgage brokers" constitute "points and fees"
under HOEPA.
6) The trial court granted the Bank's motion for summary
judgment.
7) Louisiana Court of Appeal for the Fifth Circuit reversed on
appeal.
8) Louisiana Supreme Court decided that those portions of the
appellate court decision that reversed the trial court's granting
of summary judgment in favor of the Bank as to Parnell's HOEPA and
wrongful seizure claims are reversed. And, with respect to these
two claims, the judgment of the trial court was reinstated.
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Visit
Library for Issuance
The Bank of New York, Acting Solely in Its Capacity As Trustee for
EQCC Trust 2001-2 v. Kathleen Johnson Parnell
No. 2010-C-0435 (LA: 11/30/2010)
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