Filed: Mar. 23, 2004
Latest Update: Feb. 21, 2020
Summary: United States Court of Appeals Fifth Circuit F I L E D UNITED STATES COURT OF APPEALS March 23, 2004 FIFTH CIRCUIT Charles R. Fulbruge III Clerk No. 03-50134 VICTOR H. MORENO, III, Individually and On Behalf of Others Similarly Situated; ANA LAURA MORENO, Individually and On Behalf of Others Similarly Situated, Plaintiffs-Appellants, versus SUMMIT MORTGAGE CORPORATION; FIRST NATIONWIDE MORTGAGE CORPORATION, Defendants-Appellees. Appeal from the United States District Court for the Western Distri
Summary: United States Court of Appeals Fifth Circuit F I L E D UNITED STATES COURT OF APPEALS March 23, 2004 FIFTH CIRCUIT Charles R. Fulbruge III Clerk No. 03-50134 VICTOR H. MORENO, III, Individually and On Behalf of Others Similarly Situated; ANA LAURA MORENO, Individually and On Behalf of Others Similarly Situated, Plaintiffs-Appellants, versus SUMMIT MORTGAGE CORPORATION; FIRST NATIONWIDE MORTGAGE CORPORATION, Defendants-Appellees. Appeal from the United States District Court for the Western Distric..
More
United States Court of Appeals
Fifth Circuit
F I L E D
UNITED STATES COURT OF APPEALS March 23, 2004
FIFTH CIRCUIT
Charles R. Fulbruge III
Clerk
No. 03-50134
VICTOR H. MORENO, III, Individually and On Behalf of Others
Similarly Situated; ANA LAURA MORENO,
Individually and On Behalf of Others Similarly Situated,
Plaintiffs-Appellants,
versus
SUMMIT MORTGAGE CORPORATION; FIRST NATIONWIDE MORTGAGE
CORPORATION,
Defendants-Appellees.
Appeal from the United States District Court
for the Western District of Texas
Before DUHÉ, BARKSDALE, and DENNIS, Circuit Judges.
RHESA HAWKINS BARKSDALE, Circuit Judge:
Victor and Ana Moreno appeal the summary judgment granted
Summit Mortgage Corporation and First Nationwide Mortgage
Corporation. Summit originated a mortgage loan to the Morenos and
sold it to First Nationwide. At issue is whether the Real Estate
Settlement Procedures Act, 12 U.S.C. § 2601 et seq. (RESPA),
governs that sale. Because it was a bona fide secondary market
transaction, the sale was not covered by RESPA. AFFIRMED.
I.
A summary judgment’s being at issue, the record is viewed in
the light most favorable to the Morenos — the nonmovants. Summit
originated residential mortgage loans. In so doing, it accepted
applications from potential borrowers, evaluated them and their
security for the loans, produced documentation to evidence and
perfect the loans, and provided funds for the loans if approved.
Summit did not retain ownership of the loans it originated.
Instead, it sold them to an investor, here First Nationwide.
Summit arranged the sales prior to closing the mortgage loans.
Summit and First Nationwide entered into an agreement which
governed the potential sale of mortgage loans from Summit to First
Nationwide. Under it, if Summit wanted to sell a prospective loan
to First Nationwide, it first submitted a request to First
Nationwide to commit to purchase the loan. If Summit and First
Nationwide agreed on a purchase price, First Nationwide issued a
commitment confirmation. Prior to issuance of the commitment,
Summit was not obligated to sell, or even offer, its mortgage loans
to First Nationwide. Once the commitment issued, however, Summit
had to use its best efforts to close the loan and had to tender it
for purchase by First Nationwide. Even then, First Nationwide was
not required to purchase the loan; it could reject it for failure
to meet the requirements set forth in its “Lender Guide”. After a
2
mortgage loan closed, Summit delivered the loan file to First
Nationwide for it to make its purchase decision.
For the loans it originated, Summit borrowed the money to fund
them from its warehouse lender, Bank United, pursuant to an
agreement. Under it, Bank United agreed to fund “Eligible Mortgage
Loans”. Only prospective loans with a purchase commitment from a
third party (e.g., a commitment confirmation from First Nationwide)
were “eligible” loans. Restated, Bank United would fund only those
loans already committed for purchase by a third party from Summit.
In early 2001, the Morenos applied to Summit for a federally
insured mortgage loan of $63,500, with an eight percent interest
rate, for the purchase of a home in Texas. In turn, Summit
submitted a purchase request to First Nationwide for the Morenos’
loan; and on 14 March, First Nationwide executed a commitment
confirmation to purchase the mortgage loan if it closed. Upon
receipt of the commitment, Summit requested funds from Bank United
to fund the loan. On 19 March, Summit delivered a copy of First
Nationwide’s commitment confirmation to Bank United. Around this
same time, Bank United delivered to Summit the funds needed for the
mortgage loan. Upon receipt of the funds from Bank United, Summit
was obligated to repay the amount of the mortgage loan ($63,500)
with interest (total of $64,452).
On either 19 or 20 March 2001 (the exact date is not
relevant), the Morenos and Summit closed the mortgage loan. At
3
closing, the Morenos signed a promissory note with Summit as the
payor and a deed with Summit as the beneficiary; they also signed
a letter instructing them to send all tax notices received to First
Nationwide.
On 19 March, Summit assigned the loan to First Nationwide.
And, on 10 April 2001, to pay for its purchase of the mortgage
loan, First Nationwide wired funds to Summit. By letter that same
day, First Nationwide advised the Morenos of its purchase and that
it would be servicing their loan.
The Morenos filed this action in Texas state court, claiming,
inter alia, Summit and First Nationwide violated Section 8 of
RESPA, 12 U.S.C. § 2607; this is based on the allegation that First
Nationwide paid Summit a “yield spread premium” as a referral fee
to acquire the Morenos’ mortgage loan. The action was removed to
federal court, and all but the RESPA claim was eliminated by the
Morenos. Summary judgment was granted against them because
Summit’s sale of the loan to First Nationwide was a “bona fide
secondary market transaction” not governed by RESPA.
II.
A summary judgment is reviewed de novo, applying the same
standard as the district court. Gowesky v. Singing River Hosp.
Systems, 321 F.3d 503, 507 (5th Cir. 2003). As noted, the record
is viewed in the light most favorable to the nonmovant;
accordingly, doubts are to be resolved and reasonable inferences
4
drawn in favor of the nonmovant. Id. Summary judgment is
appropriate if there is no material fact issue and the movant is
entitled to judgment as a matter of law. Id.; FED. R. CIV. P. 56(c).
RESPA was enacted to protect consumers from unnecessarily high
settlement charges and abusive mortgage practices. 12 U.S.C. §
2601. Section 8 of RESPA prohibits kickback and referral fee
arrangements whereby any payment is made, or “thing of value” is
furnished, for the referral of real estate services. 12 U.S.C. §
2607(a). Section 8 does not proscribe, however, “the payment to
any person of a bona fide salary or compensation or other payment
for ... services actually performed”. 12 U.S.C. § 2607(c)(2).
The Department of Housing and Urban Development (HUD), which
administers RESPA, has promulgated regulations for doing so,
including 24 C.F.R. § 3500.1 et seq., commonly known as Regulation
X. That regulation provides: “A bona fide transfer of a loan
obligation in the secondary market is not covered by RESPA”. 25
C.F.R. § 3500.5(b)(7). In determining what constitutes a bona fide
transfer, HUD considers the “real source of funding and the real
interest of the funding lender”. Id. In contrast, a “table-
funded” transaction is a closing “at which a loan is funded by a
contemporaneous advance of loan funds and an assignment of the loan
to the person advancing the funds” and is covered by RESPA. 24
C.F.R. § 3500.2(b). “A table-funded transaction is not a secondary
market transaction”.
Id.
5
The Morenos contend the transaction is not a bona fide
secondary market transaction because: prior to their loan’s
closing, Summit and First Nationwide were committed to First
Nationwide’s purchasing the Morenos’ loan from Summit; “bona fide”
is defined in the dictionary as “open and honest”, whereas the sale
to First Nationwide was deceitful because the Morenos were not
informed of it; and Summit’s financing of the loan was only interim
and therefore it was not the real source of funds.
This issue was addressed by a divided panel in Chandler v.
Northwest Bank Minn., Nat’l Ass’n., 137 F.3d 1053 (8th Cir. 1998).
There, plaintiffs executed a mortgage loan with Custom Mortgage; it
obtained the money to fund the loan through a warehouse lender.
Id. at 1054-55. Prior to closing, plaintiffs signed papers
informing them that the right to payment under the loan was being
assigned.
Id. at 1054. Five days after closing, a third party,
Equicon, purchased the loan from Custom in accordance with a pre-
existing agreement.
Id. The Eighth Circuit held that Custom
Mortgage was the real source of funding because the loan was not
table funded and Custom closed the loan in its own name.
Id. at
1056-57. Although that court did not explicitly hold the mortgage
sale was a bona fide secondary market transaction under Regulation
X, this is implied by its holding RESPA did not apply because
Custom was the real source of funding.
6
We agree with the reasoning of the Eighth Circuit. The sale
of the Morenos’ mortgage loan by Summit to First Nationwide was a
bona fide secondary market transaction under Regulation X. Summit
borrowed the money to fund the Morenos’ mortgage loan through its
established line of credit with Bank United, not First Nationwide;
and Summit closed the loan in its name. Summit was the only party
responsible for repaying Bank United and was therefore the real
source of funds for the mortgage loan. Moreover, the agreement
between Summit and First Nationwide for the latter’s purchase of
the mortgage loan — even if it occurred before closing — has no
bearing on Summit’s status as the real source of funds and having
the real interest in the transaction, consistent with Regulation X.
First Nationwide was not obligated to Bank United to pay the money
borrowed by Summit; instead it was obligated to pay Summit the
purchase price of the loan, as agreed upon between First Nationwide
and Summit.
This is reflected by an example in the Appendix to Regulation
X; the Appendix provides illustrations of RESPA’s requirements for
“additional guidance on [its] meaning and coverage”. 24 C.F.R. §
3500, App. B. Of course, “[c]ourts are required to ‘give
substantial deference to an agency’s interpretation of its own
regulations’”. Girling Health Care, Inc. v. Shalala, 85 F.3d 211,
215 (5th Cir. 1996) (quoting Thomas Jefferson University v.
Shalala,
512 U.S. 504, 512 (1994)).
7
The facts for illustration 5 are:
A, a “mortgage originator,” receives loan
applications, funds the loan with its own
money or with a wholesale line of credit for
which A is liable, and closes the loans in A’s
own name. Subsequently, B, a mortgage lender,
purchases the loans and compensates A for the
value of the loans, as well as for any
mortgage servicing rights.
24 C.F.R. § 3500, App. B, Ill. 5. (emphasis added). The comments
to this illustration confirm that “[c]ompensation for the sale of
a mortgage loan and servicing rights constitutes a secondary market
transaction ... and is beyond the scope of Section 8 of RESPA”.
Id.
The factual scenario at issue comports with this illustration:
Summit is the “mortgage originator” that funded the Morenos’ loan
through its wholesale line of credit; First Nationwide is the
“mortgage lender” that purchased the loan from Summit. The sale by
Summit to First Nationwide is not governed by RESPA.
III.
For the foregoing reasons, the judgment is
AFFIRMED.
8
