Mary E. BJUSTROM, individually and on behalf of all others similary situated, Plaintiff-Appellant, v. TRUST ONE MORTGAGE CORP., Defendant-Appellee.
No. 01-36076
United States Court of Appeals, Ninth Circuit.
March 20, 2003
322 F.3d 1201
Argued and Submitted Sept. 13, 2002.
B. Fry Demonstrates No Prejudice from His Counsels’ Failures to Object to the Standard of Proof Used at Sentencing.
Normally, the government must prove sentence-enhancing factors by only a preponderance of the еvidence. United States v. Romero-Rendon, 220 F.3d 1159, 1160 (9th Cir. 2000). But ” ‘when a sentencing factor has an extremely disproportionate effect on the sentence relative to the offense of conviction,’ the government may have to satisfy a ‘clear and convincing’ standard.” United States v. Hopper, 177 F.3d 824, 833 (9th Cir. 1999) (quoting United States v. Restrepo, 946 F.2d 654, 659 (9th Cir. 1991) (en banc)). Fry submits (1) that his trial counsel ineffectively represented him at sentencing by not objecting to the district court‘s use of the preponderance standard instead of the clear-and-convincing standard, and (2) that his appellate counsel ineffectively represented him by not appealing the district court‘s use of the preponderance standard. We reject these claims.
Even if Fry‘s counsel performed deficiently (an issue we need not decide), Fry‘s claims fail because he does not “af-firmatively prove prejudice” from the district court‘s application of the preponderance standard. Strickland, 466 U.S. at 693, 104 S.Ct. 2052. Nowhere does Fry specify what evidence weighed in his favor at sentencing or demonstrate how the weight of that evidence precluded the government from meeting the clear-and-convincing standard. He complains that the district court should have allowed him to present evidence at his habeas hearing, but he does not say what evidence he would have presented. Nor does he explain why a different sentence would result if the case were remanded for resentencing. Notably, the district court concluded at the habeas hearing that the evidence against Fry met the clear-and-convincing standard anyway. In sum, Fry has fallen far short of “[meeting] the burden of showing that the [sentence] reached would reasonably likely have been different absent the errors.” Id. at 696, 104 S.Ct. 2052.
III. CONCLUSION
For the foregoing reasons, the judgment of the district court is AFFIRMED.
Before HILL,* GOULD, and BERZON, Circuit Judges.
Opinion by HILL; Concurrence by Judge BERZON.
OPINION
HILL, Circuit Judge.
This is an appeal from an order granting summary judgment to Trust One Mortgage Corporation (Trust One) in a class action involving residential mortgages. The class is composed of all mortgagors whose Federal Housing Administration (FHA) mortgage loans were funded by Trust One and whose mortgage brokers were paid compensation in excess of 1% of the aggregate loan amount (the Bjustrom class). See note 6 infra.
Mary E. Bjustrom is the representative class member. The Bjustrom class asserted two causes of action: (1) breach of contract; and (2) violation of the Real Estate Settlement Procedures Act (RESPA),
The district court granted summary judgment in favor of Trust One on all three claims. We affirm the judgmеnt of the district court as to the two claims made by the Bjustrom class, breach of contract and violation of RESPA. However, we conclude that the court erred in including Bjustrom‘s state consumer protection act claim in its order of summary judgment. Such claim was not contained in Trust One‘s motion for summary judgment. We remand that claim to the district court for further proceedings as to Bjustrom, individually only. We also sua sponte vacate the order granting certification to the Bjustrom class.
I.
There are no disputed facts. Trust One is an Irvine, California, mortgage lending institution that funds FHA loans. It primarily operates through the use of mortgage brokers who refer loans to Trust One for funding. Typically, the mortgage broker performs a variety of functions, providing legitimate goods, facilities and services, in order to “package” loan applications for funding, i.e., paying fees for recording, title examinations, credit reports, surveys, appraisals, etc.
Mortgage brokers are pаid for this work. The amount of compensation they receive is regulated by the Department of Housing and Urban Development (HUD), the agency charged with FHA oversight. Typically, mortgage brokers charge a 1% loan origination fee paid directly to the broker by the borrower. The Bjustrom class maintains that, for FHA loans, an FHA regulation forbids lending institutions, such as Trust One, from paying mortgage brokers any compensation for any service in excess of 1% of the mortgage amount, and bar mortgage brokers from receiving any such additional compensation See
At issue are the lender-paid broker fees denominated as yield spread premiums (YSP)2 and service release premiums (SRP).3 Both are disclosed to a borrower on a HUD-1 Settlement Statement.
For example, in Bjustrom‘s case, in order to purchase real property in 1999, she obtained an FHA loan from Trust One, through her mortgage broker, Mortgage Specialists, Inc. (Mortgage Specialists), in the amount of $140,542.00 at an interest rate of 8%.4 As security for the lоan, Bjustrom executed a Deed of Trust in the subject property in favor of Trust One.
Bjustrom‘s HUD-1 Settlement Statement reflects a total of $7,478.27 in settlement charges. Among these charges are various taxes and fees, including a $1,374.00 origination fee, paid directly to Mortgage Specialists. The HUD-1 Settlement Statement also reflects a YSP of $702.71 and a SRP of $1,786.78 to be paid to Mortgage Specialists, albeit in a separate category, not listed in a category of services to be рaid by the borrower.
Bjustrom contends that the 1% origination fee operates as a cap, both under a breach of contract theory, implicitly incorporating
The district court certified the Bjustrom class, finding that a question of law concerning the FHA loan 1% origination fee cap was a sufficient uniform factual and
II.
The parties agree that the facts are not in dispute. We review de novo pure questions of law decided on summary judgment. See Jensen v. Lane County, 222 F.3d 570, 573 (9th Cir. 2000).
III.
Under the breach of contract claim made by the Bjustrom class, Bjustrom contends that by signing her Deed of Trust, the FHA regulation that provides a cap of 1% of the original рrinciple amount of the mortgage,
This breach of contract claim fails under the unambiguous language of the regulation itself which limits only fees “collect[ed] from the mortgagor” (the Bjustrom class) by the mortgagee (Trust One).
We agree with the persuasive analysis set out in Part II of the opinion by the district court that a plain reading of the regulation itself means directly collected, not indirectly collected. See Bjustrom, 178 F.Supp.2d at 1190 (to assert “that all borrowers ultimately pay for the yield service and service release premiums through higher interest rates is too strained a reading of ‘collect’ to compel inclusion of such indirect payments“). Cf. Geraci v. Hom-
IV.
There have been many lawsuits and class actiоns filed against residential mortgage lenders, alleging that their payment of YSPs to mortgage brokers violated RESPA. Section 8(a) of RESPA prohibits kickbacks and referral fees. See
In response to these complaints from borrowers that they may have been required tо pay more for their loan than
HUD/SOP II also confirmed the two-part test set forth in RESPA Statement of Policy 1999-1 Regarding Lender Pay-
V.
The district court in this case was writing on the proverbial clean slate with this issue of first impression, construing HUD/SOP II. Since that time there have been a number of cases on this subject, reaching the same result as reached by the district court here, including one in this circuit, Schuetz v. Banc One Mortg. Corp., 292 F.3d 1004 (9th Cir. 2002). A more recent case, Lane v. Residential Funding Corp., 323 F.3d 739 (9th Cir. 2003), with somewhat similar facts, relies on Schuetz and is consistent with what we hold today.
Other circuits have rung in, consistent with our opinion in Schuetz. See Glover v. Std. Fed. Bank, 283 F.3d 953 (8th Cir. 2002); Heimmermann v. First Union Mortg. Corp., 305 F.3d 1257 (11th Cir. 2002); cf. Krzalic v. Republic Title Co., 314 F.3d 875 (7th Cir. 2002); Haug v. Bank of Am., N.A., 317 F.3d 832 (8th Cir. 2003); O‘Sullivan v. Countrywide Home Loans, Inc., 319 F.3d 732 (5th Cir. 2003).
VI.
We find that the facts of Schuetz are virtually indistinguishable from the facts in the present case.12 In Schuetz, the plaintiff had obtained a federally related mort-
gage loan from a mortgage lender through a mortgage broker. Schuetz paid direct fees to the mortgage broker. In addition, the lender paid the mortgage broker a YSP. Schuetz brought a class action against her mortgage lender claiming that the YSP violated RESPA Section 8(a),
The Schuetz district court, finding that the issue would turn on whether or not the YSPs paid by the mortgage lender to the mortgage broker were compensation for facilities or services actually performed, determined the issue to be too fact-intensive to be resolved on a class-wide basis and denied clаss certification. Id. at 1008. The district court granted summary judgment in favor of the lender on Schuetz‘s claim that its payment of the YSP was actually a referral of business fees by the mortgage broker. Applying the two-part test set forth in HUD/SOP I, the district court concluded that: (1) the mortgage broker performed services that contributed to the transaction, and (2) that the total compensation received by the mortgage broker, which included the YSP, was reasonably related to the services provided. Id. at 1006.
This court, in Schuetz, using Chevron deference, resolved that the two-prong test contained in HUD/SOP I, as reaffirmed by HUD/SOP II, provided the appropriate standard of liability for YSPs under RESPA. Id. at 1014; see Chevron, U.S.A., Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984).
Under the second prong, the record demonstrated that the mortgage broker obtained for Schuetz the best interest rate available at the time for her specific needs. Id. The record also reflects that the broker, in its need to be compensated, would not have originated her loan for only the fees she paid directly at closing.13 Id. Therefore, the payment of YSPs to the mortgage broker by the mortgage lender did not violate RESPA Section 8. Id.14
VII.
We apply Schuetz to the facts in this case. We now know that RESPA requires a loan-specific analysis of whether total mortgage broker compensation from all sources is reasonable. See HUD/SOP II. No per se rule exists in applying RESPA Section 8 to YSPs. See Schuetz, 292 F.3d at 1013 n. 6 (citing Glover, 283 F.3d at 965 (“HUD‘s two-part test is fully consistent with RESPA. Reviewing services performed and their value on a case-by-case basis does not run afoul of the proscription stated in Section 8(a) prohibiting payments for referrals.“)).
As to the first prong, there is substantial evidence that Mortgage Specialists provided Bjustrom with a host of compensable goods, facilities, and services that contributed to the transaction. She was pleased to obtain her FHA loan on an expedited two-week basis. She had received good service from them in prior real estate transactions. Bjustrom also paid more than $1,000 less cash up front. There is no evidence to the contrary.
As to the second prong, the record demonstrates that, although the FHA loan rate of 8% was not the best rate in the Seattle market at the time, Bjustrom chose it basеd upon her self-imposed time constraints and her desire to pay as little cash up front as possible. Bjustrom offered no evidence to prove that her mortgage broker‘s services weren‘t worth what it was paid. To the contrary, the record reflects that she had reviewed the YSPs and the SRPs paid by Trust One to Mortgage Specialists and “was satisfied with the numbers.” As the total compensation received by Mortgage Specialists was reasonably related to the services it рrovided, the second prong is also met.
Mortgage Specialists did all the work “packaging” the loan that would have been done by Trust One if Trust One had not used a mortgage broker in the transaction. The claims of the Bjustrom class, if valid, would make it unlawful for such a lender to pay its employees for the work they would do in preparing a proposed loan for closing. Under facts common to the members of the Bjustrom class, the district correctly concluded that payment of the YSPs and SRPs did not violate RESPA.
Based upon the foregoing, we affirm the judgment of the district court granting summary judgment to Trust One on the breach of contract claim and the RESPA violation claim made by the Bjustrom class. We remand Bjustrom‘s individual state consumer law claim to the district court for further proceedings on her behalf.
Although the issue of whether or not the Bjustrom class was properly certified is not before us, we sua sponte vacate the Bjustrom class certification. Those purported Bjustrom class members, can, if they wish, undertake to bring individual actions based upon their own distinguishing facts, if any.
AFFIRMED in part and REMANDED in part.
BERZON, Circuit Judge, concurring.
In my view, Judge Kleinfeld‘s dissent in Schuetz v. Banc One Mortgage Corp., 292 F.3d 1004 (9th Cir. 2002), has it exactly right. Yield spread premiums and similar devices violate the anti-kickback provisions of the Real Estate Settlement Procedures Act (RESPA),
Therе is one reason in addition to those discussed by Judge Kleinfeld for rejecting HUD‘s latest view of the meaning of the anti-kickback provision, as applied to FHA loans. As the majority opinion explains, there is a 1% limit on direct origination fees for such loans. It therefore makes no sense to explain the YSP and SRP as spreading out fees that the borrower would otherwise pay up front, because it is not legal to charge those fees up front to the borrower. While I agree with Part III оf the opinion that the FHA‘s 1% cap does not forbid indirect payments by the lender, it is precisely because they are indirect payments by the lender that they cannot constitute relief to the borrower from higher out-of-pocket costs.
I nonetheless concur in the opinion in its entirety, because Schuetz and Lane v. Residential Funding Corp., 323 F.3d 739 (9th Cir. 2003), reaffirming Schuetz, are binding precedent, and I agree that “the facts of Schuetz are virtually indistinguishable from the facts in the present case.”
Notes
§ 203.27 Charges, fees or discounts.
(a) The mortgagee may collect from the mortgagor the following charges, fees or discounts:
(i) $20 dollars or one percent of the original principal amount of the mortgage ... whichever is the greater.
- Obtained an FHA mortgage loan funded by Trust One;
- Written on a standard FHA mortgage contract similar to Plaintiff‘s in limiting the fees and charges collected to those authorised by the Secretary of [the Department of Housing and Urban Development] HUD;
- Where the loan was registered with Trust One for funding by a mortgage broker or loan correspondent;
- Where the aggregate fees charged and collected for originating and processing the loan by way of direct or indirect fees (including, any loan origination fee or yield spread premium tied to the interest rate on the loan, however denominated) exceeded 1% of the aggregate loan amount.
- Obtained an FHA mortgage loan funded by Trust One;
- Where the loan was registered with Trust One for funding by a mortgage broker or loan correspondent;
- Where a yield spread premium, service release premium and/or lender paid broker fee, however denominated, was paid by Trust One to the mortgage broker or loan correspondent;
- Where the aggregate loan origination fees (all fees for loan origination and processing services, however denominated), equal to or exceeding 1% of the loan amount, were also charged.
At one time HUD considered bringing its regulatory pattern into the new millennium when it proffered a proposal to eliminate the 1% origination fee entirely. Bjustrom, 178 F.Supp.2d at 1192 (citing Deregulation of Mortgagor Income Requirements, 54 Fed.Reg. 38646 (Sept. 20, 1989)).
(Its only reason for not doing so seems to have been that it did not need to be eliminated because it didn‘t really amount to anything, anyway!).
Since a shortfall in mortgage origination costs can easily be recovered through adjustments to the mortgage loan interest rate, mortgagors are currently bearing loan оrigination costs (directly through loan origination fees and indirectly through mortgage interest rates) at the competitive level set in the marketplace. Therefore, the elimination of the loan origination fee cap would be expected to cause no change in the total origination cost for mortgagors. Id. at 38646-7.
Thus, content with obfuscation, HUD left vestiges of old cautions to require the work of innumerable district courts and a number of courts of appeal to penetrate the haze.
No person shall give and no person shall accept any fee, kickback, or thing of value pursuant to any agreement or understanding, oral or otherwise, that business incident to or a part of a real estate settlement service involving a federally related mortgage loan shall be referred to any person.
Nothing in this section shall be construed as prohibiting (1) the payment of a fee ... (C) by a lender to its duly appointed agent for serviсes actually performed in the making of a loan, [or] (2) the payment to any person of ... compensation or other payment for goods or facilities actually furnished or for services actually performed.....