Freeman et al. v. Quicken Loans, Inc.

Does Section 8(b) of RESPA (12 USC 2607(b)) prohibit a real estate settlement services provider from charging an unearned fee? The U.S. Supreme Court settled a division between the U.S. Circuit Courts of Appeals, and cleared the air for many in the mortgage industry in its May 24, 2012, decision.

Three couples claimed they were charged "unearned fees" at closing in violation of 12 USC 2607(b). Two of the couples claimed they paid loan discount fees of about $1,000 but got no reduction in their interest rates. Another couple challenged a $575 "loan processing fee" and an origination fee over $5,000.

The Court unanimously agreed that Section 2607(b) is to be construed literally: “No person shall give and no person shall accept any portion, split, or percentage of any charge made or received for the rendering of a real estate settlement service in connection with a transaction involving a federally related mortgage loan other than for services actually performed.” In the view of the Court, Section 8(b) “unambiguously covers only a settlement-service provider’s splitting of a fee with one or more other persons; it cannot be understood to reach a single provider’s retention of an unearned fee.”

The decision effectively nullifies at least a portion of a 2001 HUD policy statement (66 FR 53059) that interpreted Section 2607(b) "as not being limited to situations where at least two persons split or share an unearned fee." Lenders will be watching for reaction from the CFPB, which assumed authority for interpreting RESPA from HUD on July 21, 2011.