Lonnie Glover v. Standard Fed. Bank

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
___________

No. 00-3611
___________

Lonnie Glover; Dawn Glover, *
*
Plaintiffs/Appellees, *
*
v. * Appeal from the United States
* District Court for the District
Standard Federal Bank, * of Minnesota
*
Defendant/Appellant, *
*
Heartland Mortgage, *
*
Defendant. *
___________

Submitted: October 19, 2001

Filed: March 21, 2002
___________

Before McMILLIAN, BEAM, and MURPHY, Circuit Judges.
___________

BEAM, Circuit Judge.

The district court issued its first class certification in this matter on March 22,
2000, certifying a class defined as all people obtaining a mortgage brokered by
Heartland Mortgage ("Heartland") and financed by Standard Federal Bank ("Standard
Federal"). On September 26, 2000, the district court modified its class certification
to create a nationwide class defined as all individuals who obtained a mortgage
financed by Standard Federal and brokered by any mortgage broker. This nationwide
class certification, encompassing potentially hundreds or thousands of loans, is the
subject of this interlocutory appeal. Standard Federal appeals from the district court
order confirming class certification. For the reasons set forth below, we reverse.1

I. BACKGROUND

Named plaintiffs Lonnie and Dawn Glover acquired an adjustable rate
mortgage for the purchase of their home in the late 1980s. In 1996, they refinanced
their loan and obtained a fixed-rate mortgage. Heartland brokered the 1996
transaction and Standard Federal funded and acquired the 1996 mortgage.

As part of the 1996 refinancing, Heartland brokered a mortgage for the Glovers
with an "above par" interest rate and was subsequently paid a yield spread premium
("YSP") by Standard Federal.2 The payment of this YSP is the focus of the current
dispute.

The Glovers argue that the payment of the YSP constitutes a fee for the referral
of a mortgage negotiated with interest rates that are disadvantageous to borrowers,
and that this payment violates the Real Estate Settlement Procedures Act ("RESPA"),
12 U.S.C. § 2601, et. seq. RESPA was enacted to initiate significant reforms in the
real estate settlement process "to insure that consumers throughout the Nation are
provided with greater and more timely information on the nature and costs of the
settlement process and are protected from unnecessarily high settlement charges

1
We also note that a motion of Lonnie and Dawn Glover to strike the affidavit
of Margaret K. Savage was taken with the case. The motion is granted.
2
The disputed payment in the instant case is actually referred to as a "service
release premium" in the required Department of Housing and Urban Development
disclosures form.

-2-
caused by certain abusive practices." 12 U.S.C. § 2601(a). RESPA prohibits the
payment of some referral fees, stating:

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.

12 U.S.C. § 2607(a) ("Section 8"). Subsection (c) of section 2607 then qualifies
subsection (a) by stating:

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 services
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 . . ..

12 U.S.C. § 2607(c)(1) & (2). At issue in this case is whether payment of a YSP
violates RESPA's prohibition against referral fees, or whether a YSP might satisfy
RESPA's qualification of payments for goods and facilities actually furnished or
services actually performed, which payments are not prohibited. A brief explanation
of the industry practice regarding YSPs provides helpful insight.

In the arena of retail and wholesale mortgages, banks such as Standard Federal
fund mortgage loans originated by mortgage brokers. Mortgage brokers provide
origination services and bring a borrower and a lender together to complete a loan.
The Department of Housing and Urban Development ("HUD") estimates that
mortgage brokers initiate about half of all home mortgages each year in the United
States. These brokers provide "various services in processing mortgage loans, such
as filling out the application, ordering required reports and documents, counseling the

-3-
borrower and participating in the loan closing." Real Estate Settlement Procedures
Act (RESPA) Statement of Policy 1999-1 Regarding Lender Payments to Mortgage
Brokers, 64 Fed. Reg. 10080, 10081 (March 1, 1999) (hereinafter "HUD Policy
Statement I"). Brokers may also offer goods and facilities such as office space and
equipment to carry out loan-making functions. Id.

Brokers are entitled to compensation for their work and borrowers may choose
to pay these fees in a variety of ways. The fees may be paid out-of-pocket by the
borrower, they may be financed by adding the amount of such fees to the principal
balance of their loan, or they may be paid indirectly by the borrower by way of a YSP
paid by the lender to the broker. The second approach may not be available to all
borrowers, however, if their loan-to-value ratio has already reached the maximum
permitted by the lender. The payment of a YSP from the lender to the broker permits
homebuyers to pay some or all of the up-front settlement costs over the life of the
mortgage through a higher interest rate. HUD Policy Statement I, at 10081.

In determining the amount of YSP to pay, wholesale lenders such as Standard
Federal establish a wholesale price for originating loans and communicate this
pricing schedule to brokers through daily rate sheets. Rate sheets set forth the amount
that the wholesale lender will pay brokers for various types of mortgage loans, taking
into account a number of variables. These rate sheets discuss loans in terms of
"above par," "at par," and "below par."3 "The term 'par rate' refers to the rate offered
to the broker . . . at which the lender will fund 100% of the loan with no premiums
or discounts to the broker." HUD Policy Statement I, at 10081, n.1. If "the mortgage

3
Although both parties to this appeal refer to these three rate terms in briefing,
our examination of the record fails to disclose that rate sheets, if any, available to the
district court actually set forth these three rates. The Glovers offer to supplement the
record with a series of Standard Federal rate sheets, an offer we have declined, but
even these papers appear to contain only a single, published base rate for each type
of loan available.

-4-
carries a higher interest rate, the lender is able to sell it to an investor at a higher
price. In turn, the lender pays the broker an amount reflective of this price
difference." 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, 53054 (October 18, 2001) (hereinafter "HUD Policy Statement II").

Regardless of how the broker compensation is handled, all costs are ultimately
paid by the borrower, whether through direct fees paid to the broker, through the loan
principal or through the interest rate arranged with the lender. So, when a mortgage
broker originates a loan above par, the broker receives a YSP payment from the
mortgage lender which is based upon the daily rate sheet and the interest rate of each
loan offered by the broker to the borrower. HUD Policy Statement I, at 10081. In
this way, as earlier indicated, the borrower indirectly finances the amount of that
premium through the mortgage lender so as to avoid the necessity of a direct payment
to her broker, thereby reducing the amount of out-of-pocket expenses required at, or
prior to, closing. Id. Some consumers, like the Glovers, allege that this compensation
system is illegal under RESPA because it fosters the payment of prohibited referral
fees. Others view this practice as an option that fosters homeownership because it
reduces the amount of money required from borrowers up-front and out-of-pocket.
HUD Policy Statement II, at 53054. In any event, wholesale lenders such as Standard
Federal claim, and apparently stand ready to attempt to prove at trial, that they
ultimately receive the same compensation from each loan, whether or not a YSP is
paid as part of the transaction. This is because, they argue, the increased amounts
received from secondary investors for a higher interest rate loan are, as noted by HUD
Policy Statement II, usually passed along to the broker for services rendered.

-5-
II. DISCUSSION

A. Jurisdiction

Pursuant to Federal Rule of Civil Procedure 23(f), "[a] court of appeals may in
its discretion permit an appeal from an order of a district court granting or denying
class action certification . . . if application is made to it within ten days after entry of
the order." The Glovers argue that this court lacks jurisdiction to review the district
court's September 26, 2000, order because it was not an order granting or denying
class certification. We disagree.

Rule 23(a) of the Federal Rules of Civil Procedure sets forth the threshold
requirements for certification of a class. A class may be certified if:

(1) the class is so numerous that joinder of all members is impracticable,
(2) there are questions of law or fact common to the class, (3) the claims
or defenses of the representative parties are typical of the claims or
defenses of the class, and (4) the representative parties will fairly and
adequately protect the interests of the class.

In addition, to maintain a class action the court must find that one of the requisites of
Rule 23(b) is present, among them being that "questions of law or fact common to the
members of the class predominate over any questions affecting only individual
members." Fed. R. Civ. P. 23(b)(3).

On March 22, 2000, the district court held that the Glovers met their burden
under Rule 23 and defined the potential class as all people obtaining a mortgage
brokered by Heartland and financed by Standard Federal under circumstances which
gave rise to any of the type of incentive payments described in the complaint. On
September 26, 2000, pursuant to a request by the Glovers to clarify the class, the
district court recognized it did not previously define the class as the Glovers

-6-
requested. The district court concluded that a nationwide class was consistent with
the common questions of law and fact discussed in the March 22, 2000, order, and
certified a nationwide class of "all people obtaining a mortgage during the appropriate
time period, financed by Standard Federal Bank under circumstances which gave rise
to yield spread premiums or service release premiums, and brokered by any mortgage
broker pursuant to a Correspondent Agreement identical to the Correspondent
Agreement between Standard Federal Bank to Heartland Mortgage Corp." Appellant's
Addendum at 30-31 (emphasis added).

The district court order at issue does not merely deal with a clarification of the
scope and contour of the class as the Glovers profess. The September 26, 2000, order
opens up the class to individuals working through an entire network of mortgage
brokers across the nation beyond the more limited group, outlined in the March 22,
2000, order, of those individuals who obtained a mortgage brokered only by
Heartland. Clearly, as to both these newly defined class members and those described
on March 22, the September 26 order constitutes class certification. The district court
labeling the order a clarification does not change this fact.

As we have done on two previous occasions in this case, we find jurisdiction
pursuant to Federal Rule of Civil Procedure 23(f) appropriate to review the district
court order granting class certification.

B. Standard of Review

We review a district court's ruling granting or denying class certification for
abuse of discretion. Chaffin v. Rheem Mfg. Co., 904 F.2d 1269, 1275 (8th Cir.
1990).

-7-
 C. Measure of Deference Provided HUD's Statements of Policy

In March 1999, and again in October 2001, HUD issued Statements of Policy
regarding lender payments to mortgage brokers. HUD's Policy Statement I responded
to a Conference Report on the Departments of Veterans Affairs and Housing and
Urban Development, and Independent Agencies Appropriations Act, 1999, directing
HUD to clarify its position on lender payments to mortgage brokers.4 In October
2001, HUD published Policy Statement II in order to "eliminate any ambiguity
concerning the Department's position with respect to those lender payments to
mortgage brokers characterized as yield spread premiums . . . as a result of questions
raised by two recent court decisions, Culpepper v. Irwin Mortgage Corp. and
Echevarria v. Chicago Title and Trust Co., respectively." HUD Policy Statement II,
at 53052. Policy Statement II specifically expresses HUD's disagreement with the

4
Notwithstanding the fact that HUD issued its Policy Statement at the directive
of a Conference Report, we apply only the standards set by legal precedent in
determining the measure of deference to give HUD's communication. The statement
that "Congress never intended payments by lenders to mortgage brokers for goods
or facilities actually furnished or for services actually performed to be violations of
. . . RESPA," constitutes only a congressional committee's post facto interpretation
of the law. Congress may not conscript agencies to legislate for it. If Congress
wishes to legislate conclusively, it must do so directly. A statement made by
Congress after the legislative process does not have the force of law and is almost
wholly unpersuasive. Reviewing courts must also be careful not to allow an agency
to create de facto new regulations under the guise of interpreting an earlier regulation.
See Christensen v. Harris County, 529 U.S. 576, 588 (2000). HUD most
appropriately expresses its concern on this matter in its 1999 Statement of Policy
when it states its own belief that "broad legislative reform . . . remains the most
effective way to resolve the difficulties and legal uncertainties under RESPA and the
Truth in Lending Act (TILA) for industry and consumers alike." HUD Policy
Statement I, at 10080. Our decision today credits HUD's Policy Statements with only
the amount of deference due an agency's interpretation of its own regulation, as
established by the Supreme Court. See Christensen, 529 U.S. 576.

-8-
judicial interpretation regarding Section 8 of RESPA and the 1999 Statement of
Policy as set forth in Culpepper. Id. at 53054-55.

Whether or not we follow HUD's Policy Statements is dispositive in this case
because if we endorse the two-part test advocated by HUD, the inquiry in each case
must necessarily be made on a loan-by-loan basis, therefore eliminating class
treatment. The Glovers argue that the Policy Statements issued by HUD are contrary
to RESPA and are thus entitled to no deference.

HUD Policy Statement I sets forth a two-part test to determine whether a
payment from a lender to a mortgage broker is permissible under Section 8 of
RESPA:

[T]he first question is whether goods or facilities were actually furnished
or services were actually performed for the compensation paid. The fact
that goods or facilities have been actually furnished or that services have
been actually performed by the mortgage broker does not by itself make
the payment legal. The second question is whether the payments are
reasonably related to the value of the goods or facilities that were
actually furnished or services that were actually performed.

In applying this test, HUD believes that total compensation should be
scrutinized to assure that it is reasonably related to goods, facilities, or
services furnished or performed to determine whether it is legal under
RESPA. Total compensation to a broker includes direct origination and
other fees paid by the borrower, indirect fees, including those that are
derived from the interest rate paid by the borrower, or a combination of
some or all. The Department considers that higher interest rates alone
cannot justify higher total fees to mortgage brokers. All fees will be
scrutinized as part of total compensation to determine that total
compensation is reasonably related to the goods or facilities actually
furnished or services actually performed. HUD believes that total
compensation should be carefully considered in relation to price
structures and practices in similar transactions and in similar markets.

-9-
HUD Policy Statement I, at 10084.

HUD Policy Statement II sets forth, among other things, the following
clarification of the HUD test contained in Policy Statement I:

1. The First Part of the HUD Test:

Under the first part of HUD's test, the total compensation to a mortgage
broker, of which a yield spread premium may be a component or the
entire amount, must be for goods or facilities provided or services
performed. HUD's position is that in order to discern whether a yield
spread premium was for goods, facilities or services under the first part
of the HUD test, it is necessary to look at each transaction individually,
including examining all of the goods or facilities provided or services
performed by the broker in the transaction, whether the goods, facilities
or services are paid for by the borrower, the lender, or partly by both.

It is HUD's position that neither Section 8(a) of RESPA nor the 1999
Statement of Policy supports the conclusion that a yield spread premium
can be presumed to be a referral fee based solely upon the fact that the
lender pays the broker a yield spread premium that is based upon a rate
sheet, or because the lender does not have specific knowledge of what
services the broker has performed.

...

Whether or not a yield spread premium is legal or illegal cannot be
determined by the use of a rate sheet, but by how HUD's test applies to
the transaction involved.

HUD Policy Statement II, at 53055.

When reviewing an agency's construction of a statute it administers, a court
must first ask whether Congress has directly spoken to the precise question at issue.

-10-
Chevron U.S.A. Inc. v. Natural Res. Defense Council, Inc., 467 U.S. 837, 842 (1984).
The legality of a YSP payment (or any other specific type of payment) to a mortgage
broker is not directly addressed by RESPA. Neither is how one deals with the
tension created by the words of Sections 8(a) and 8(c). Thus, the intent of Congress
on this issue is not expressly set forth in the statute. Therefore, under Chevron, we
must determine whether HUD's analysis as set forth in its regulation is based on a
permissible construction of the statute. Id. at 843.5

"If Congress has explicitly left a gap for the agency to fill, there is an express
delegation of authority to the agency to elucidate a specific provision of the statute
by regulation." Id. at 843-44. Agency regulations promulgated under express
congressional authority are given controlling weight unless they are arbitrary,
capricious, or manifestly contrary to the statute. Id. at 844. In the instant case, it
appears Congress did intend to delegate authority to HUD by expressly authorizing
HUD to "prescribe such rules and regulations, to make such interpretations, and to
grant such reasonable exemptions for classes of transactions, as may be necessary to
achieve the purposes of [RESPA]." 12 U.S.C. § 2617(a). HUD promulgated rules
under RESPA at 24 C.F.R. § 3500.01 et. seq., subject to notice-and-comment.
Because these rules were promulgated under the express authority of Congress and
adjudicated with apparent congressional intent to carry the force of law, they are
accorded Chevron deference. United States v. Mead Corp., 121 S. Ct. 2164, 2172
(2001). However, these regulations are not directly at issue today, as the language
of the Section 8(a) regulation issued by HUD simply mirrors that of the statute.6

5
If the statute is unambiguous, as claimed by the Glovers, we think, as later
explained, any lack of ambiguity runs in the direction of HUD's construction of the
law and not the analysis advanced by the Glovers.
6
Section 3500.14(b) mirrors Congress' directive in 12 U.S.C. § 2607 and states
"[n]o person shall give and no person shall accept any fee, kickback or other thing of
value pursuant to any agreement or understanding, oral or otherwise, that business
incident to or part of a settlement service involving a federally related mortgage loan

-11-
 We are called upon today to review HUD's two Statements of Policy, which
interpret HUD's own regulations promulgated under RESPA and which set forth the
two-part test, to determine whether, or under what circumstance, a payment from a
lender to a mortgage broker is permissible under Section 8 of RESPA.
"[I]nterpretations contained in policy statements . . . which lack the force of law–do
not warrant Chevron-style deference." Christensen v. Harris County, 529 U.S. 576,
587 (2000) (citing EEOC v. Arabian American Oil Co., 499 U.S. 244, 256-258 (1991)
(measuring deference given an EEOC policy statement interpreting a statute on
Skidmore v. Swift & Co., 323 U.S. 134, 140 (1944) standards and not Chevron
standards)).

In this case, however, we have a duly promulgated regulation, which has the
force of law under Chevron, but which for our purposes continues the statutory
ambiguity. It remains unstated and unclear under the regulation, as under the statute,
whether payment of a YSP to a mortgage broker does, or must, in whole or in part,
constitute an unearned fee. Thus we are not dealing with Mead, and its corresponding
line of cases, which address the issue of deference due regulations or other
congressionally authorized interpretations of a guiding statute. See Mead, 533 U.S.
218; Chevron, 467 U.S. at 842; Skidmore v. Swift & Co., 323 U.S. 134, 140 (1944)
(giving lesser agency rulings, statements, interpretations and opinions concerning
statutory meaning deference only proportional to their power to persuade given the
agency's specialized experience, investigations and available information).

We look, instead, to Bowles v. Seminole Rock & Sand Co. and its progeny for
guidance in determining what deference is due an agency interpretation of its own
ambiguous regulation. See Christensen, 529 U.S. at 588 (giving deference to an
agency's interpretation of its own regulation only if the language of the regulation is

shall be referred to any person." Like the statute, the regulation makes no attempt to
further define or describe the nature or character of the type of payment that would
or would not be a prohibited "referral" fee.

-12-
ambiguous); Auer v. Robbins, 519 U.S. 452, 461 (1997) (giving controlling deference
to an agency's interpretation of its own ambiguous regulation unless plainly erroneous
or inconsistent with the regulation); Bowles v. Seminole Rock & Sand Co., 325 U.S.
410, 413-14 (1945) ("Since this involves an interpretation of an administrative
regulation a court must necessarily look to the administrative construction of the
regulation if the meaning of the words used is in doubt. . . . [T]he ultimate criterion
is the administrative interpretation, which becomes of controlling weight unless it is
plainly erroneous or inconsistent with the regulation."). Referring to this line of
cases, we believe that HUD's Policy Statements interpreting its own ambiguous
regulation are controlling authority unless they are plainly erroneous or inconsistent
with the regulation or the purpose of RESPA. Christensen, 529 U.S. at 588
(construing Auer v. Robbins, 519 U.S. at 462 ).

However, if Christensen does not contemplate situations, as here, where the
agency regulation does nothing more than mirror the ambiguous language of the
statute, our decision to give deference to HUD's Policy Statements remains steadfast.
See Cunningham v. Scibana, 259 F.3d 303, 307 n.1 (4th Cir. 2001) (holding that
Christensen does not apply if there is no ambiguous interpretive language in the
regulation, that is if the agency "simply repeated the statutory language in the
regulation and left its interpretation of [the statutory language] to a program [or
policy] statement," Skidmore principles apply). HUD's Policy Statements in this
instance pack sufficient power to persuade given HUD's specialized mission,
experience and broad investigation into the consumer lending market. Skidmore, 323
U.S. at 140.

In sum then, applying either Christensen or Skidmore, we find that the Policy
Statements issued by HUD reflect a reasoned view of a responsible agency which is
consistent with the statute and the regulation and which constitutes a body of
experience and informed judgment that this court may look to as determinative
authority. And, we do so.

-13-
 D. The Policy Statements

The Glovers reject HUD's analysis. In support of the district court's decision,
the Glovers argue that under the plain language of RESPA, the first inquiry is always
whether the YSP premium is payment for a prohibited referral rather than for
facilities, goods and services. If the YSP is really a referral fee, the payment violates
RESPA regardless of the fact that the broker may actually perform services. Thus,
the first inquiry, says the Glovers, focuses not on whether facilities, goods and
services were provided, but on what the payment is for.

The Glovers further argue that evidence of the nature, value and reasonableness
of facilities, goods and services provided in a particular transaction is essentially
irrelevant in this first inquiry. They assert that because the total dollar amount of a
YSP paid to a broker depends solely on the rate of interest brokered for the borrower,
and because the payment of these premiums by Standard Federal is based upon a
course of business guided by identical Correspondent Agreements, there is no need
for an individualized inquiry. Class certification is appropriate, they say, because this
evidence establishes that the YSP premium is payment for a referral, thus raising at
least a presumption of liability. These are the questions of fact that preponderate,
they contend. The Glovers allege that Standard Federal's practice focuses on a
systematic marketing program of paying repeated fees and bonuses based only on the
value and frequency of referrals without knowledge of the quantity or quality of
services provided by each mortgage broker.7

7
In their briefing and supplemental submissions in this case, the Glovers make
much of the fact that Standard Federal pays bonuses to their network of brokers as
generalized proof of prohibited payments under RESPA. However, the name given
any payment to a broker is not the important issue under RESPA. We look at the total
compensation, whatever its form. See HUD Policy Statement I, at 10084.

-14-
 The Eleventh Circuit has arguably endorsed at least part of this line of
reasoning in its recent decision in Culpepper v. Irwin Mortgage Corp., 253 F.3d 1324
(11th Cir. 2001), cert. denied, 122 S. Ct. 930 (2002). In Culpepper, a panel of the
circuit affirmed class certification in a similar case where mortgagors brought a class
action against a mortgage lender, arguing that the lender's payment of YSPs to a
mortgage broker violated the anti-kickback provision of RESPA. Id.8 The court
rejected the lender's contrary argument, stating "[i]f [the lender] has read the HUD
Statement correctly . . . HUD has now decided that § 8(c) deems some such referral
fees legal–that is, referral fees that are paid by lenders and that would be reasonable
service fees, if that's what they were." Id. at 1330. The Eleventh Circuit interpreted
HUD Policy Statement I, an interpretation now repudiated by HUD, see HUD Policy
Statement II, and ultimately found that "the first step in the test for liability under §
8 is not only whether the broker performed some of the services described in the
HUD Statement, but also whether the yield spread premium is payment for those
services rather than for a referral." Culpepper, 253 F.3d at 1331. The court in
Culpepper reasoned that if the purpose of the lender payment is only for referrals and
not for services, you do not get to step two of HUD's two-part test. Id. Under this
interpretation, focusing only on a purported search for the lender's intent in each case,
Culpepper found that similar questions of fact predominate, justifying class
treatment.9

8
There is, perhaps, a significant factual difference in Culpepper. There, the
class consists of "persons who . . . obtained . . . [a] loan . . . wherein the broker was
paid [presumably by the borrower] a loan origination fee of 1% or more and wherein
[the lender] paid a 'yield spread premium' to [the] mortgage broker." 253 F.3d at
1326. No such loan origination fee is required for membership in the proposed class
in this case.
9
We note, however, that for this case Culpepper does not appear to be apposite
precedent. The Eleventh Circuit, in its exercise interpreting HUD Policy Statement
I, appears to have given at least some deference to HUD policy pronouncements.
But, Culpepper was considered and published prior to HUD's more recent Policy
Statement of October 18, 2001, a policy that we believe is due either Christensen or

-15-
 Both the Eleventh Circuit and the Glovers profess that they adopt HUD's
statement that YSPs are not "per se" illegal. HUD Policy Statement I at 10084,
Culpepper, 253 F.3d at 1331, Appellees' Brief at 64. In doing so, they advance a few
factual scenarios under which they claim a YSP payment might pass muster under
RESPA. Given the gloss the Glovers would place on RESPA, we are not persuaded
that they describe realistic examples. In the context of the residential loan industry
as it exists today, we have difficulty seeing many, if any, factual situations in which
a YSP could lawfully coexist with their contentions. Using the Glovers' interpretation
of the statute, inventive minds making clever arguments can turn virtually any
payment flowing from a lender to a broker, in connection with the placement of a
mortgage loan, into a purported payment for the unlawful referral of business.
However, Section 8(c) clashes with this result. It clearly states that reasonable
payments for goods, facilities or services actually furnished are not prohibited by
RESPA, even when done in connection with the referral of a particular loan to a
particular lender. The Glovers' approach tends to turn the interrelated sections upside
down, putting total emphasis on the prohibitory language of Section 8(a) and no
emphasis on the permissive language of Section 8(c).

HUD's Policy Statements, on the other hand, reconcile both facets of RESPA
policy. HUD requires a determination of whether goods or facilities were actually
furnished or services were actually performed and whether the amounts of the
payments are reasonably related to the value of these goods, facilities, or services.
HUD Policy Statement I, at 10084; HUD Policy Statement II, at 53054. We agree

Skidmore deference. As previously noted, the court in Culpepper reached its final
conclusion by finding HUD's two-part test "ambiguous" thus leaving room for the
court to inject its own interpretation of HUD's intent. The Eleventh Circuit has not
stated its position regarding the deference due HUD Policy Statement II. We will not
conjecture whether it will remain steadfast in its position regarding the ambiguity of
HUD's Policy Statement now that HUD has clearly stated that it differs with the
analysis made in Culpepper.

-16-
with this approach because we believe that one cannot take a tightly focused look at
but one side of the prohibited/permitted equation. A lender's reliance on a rate sheet
to uniformly offer and calculate a YSP payable to a broker does not, without more,
mean that class certification is appropriate. Nor does it mean that you can presume
that each payment reflects payment of a prohibited referral fee simply because the
lender does not have specific knowledge of the nature and amount of service the
broker performs in conjunction with a particular loan or group of loans. HUD Policy
Statement II, at 53055. Like HUD, we doubt that many, if any, lenders are ignorant
of the fact that brokers perform many unique services during these transactions, in
addition to bringing the borrower and lender together. HUD Policy Statement II, at
53055. Indeed, the preliminary and closing papers in each transaction identify and
quantify services performed, facilities used and goods supplied. In fact, the
predominant reason lenders use brokers at all is to provide borrowers the necessary
goods, services and facilities that the lender itself chooses not to offer, for economic
or other business-related reasons.

Contrary to the Glovers' argument, 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. Nor does it mean that you retroactively purify unlawful referral fees by
offsetting their existence against the performance of legitimate settlement services.
Indeed, the Glovers' course effectively writes Section 8(c) out of RESPA. As noted,
Section 8(c) clearly anticipates payments to individuals for goods or facilities actually
furnished or for services actually performed, and specifically excludes these payments
from the Section 8(a) proscription. 12 U.S.C. § 2607(c)(2). Nothing in RESPA
prohibits such payments in the mode of a YSP, or in any other particular form, and
HUD's test simply helps determine whether the YSP, by its existence, use and
amount, falls within or without the permissive boundaries of Section 8(c).

-17-
 We reject the Glovers' claim that HUD's policy provides a self-serving
reasonability valuation system operating within a discrete mortgage lender/broker
market, a system that drowns any reasonability standard in a sea of broker-only
comparisons. This argument is unsupported. The analysis will necessarily involve
values affixed to the same or similar goods, facilities or services both within and
without the local mortgage broker industry. If total compensation paid by the lender
to the broker in a given transaction exceeds a reasonable amount for the goods,
services and facilities provided, it is likely that a RESPA violation has been
established. American courts have accurately and fairly determined reasonability in
similar situations since their inception, and they will do so in the Glovers' case, if
necessary.

If HUD's step one analysis is not undertaken prior to a class-wide
pronouncement of RESPA liability, it is almost certain that at least some legitimate
Section 8(c) activities now performed by mortgage brokers will be left
uncompensated. Should this occur, the present borrower/broker/lender relationship
will disintegrate, at least for those buyers who must borrow above par in order to
finance settlement services.

Under HUD policy, the Glovers and the individual members of the proposed
class are far from unprotected by RESPA. If the case-specific inquiry establishes at
step one that no compensable services were performed in return for the YSP, the
inquiry ends and a violation is probably made out. If compensable goods, facilities
or services are provided, HUD's step two leads to a RESPA remedy if any part of the
total payment, including the YSP, proves to be excessive and, thus, an unlawful
referral fee. And, even though each RESPA violation will usually not yield a large
judgment, Congress has guaranteed legal representation under RESPA by permitting
attorneys fees and costs as part of each allowable recovery. 12 U.S.C. § 2607(d)(5).
This permits and encourages individual consumers to raise valid RESPA claims.
Accordingly, a class action is not necessary for justice to be done.

-18-
 Finally, a loan-specific inquiry to determine liability under RESPA is further
supported by RESPA's own directions for a loan-specific inquiry to measure damages.
Section 2607(d)(2) of RESPA calculates damages for a violation of the act "equal to
three times the amount of any charge paid for such settlement service." The plain
language of RESPA, then, demands that there be a determination of which settlement
services are provided in connection with each real estate settlement including such
things as title searches, title examinations, the preparation of documents, property
surveys, and other potential services defined at section 2602(3). It appears, therefore,
that RESPA anticipates an inquiry into the services provided in order to determine
whether a prohibited referral occurred in the first instance, and also to determine the
amount of damages warranted, if any. This loan-specific analysis is required to
determine civil liability as well as to measure damages under RESPA.

We reject the analysis in Culpepper, and while it remains the law in the
Eleventh Circuit, we choose a different conclusion, giving due deference to HUD's
interpretations of its regulations.

III. CONCLUSION

We accept the loan-specific liability test promulgated by HUD, which
recognizes that YSPs may be used as a way to finance closing costs. Accordingly,
a loan-specific analysis is required in determining whether the payment of a YSP is
based upon services rendered or an illegal referral. We do not surmise that the
payment of a YSP will pass muster in each instance, or even in this case. We further
emphasize that our opinion today in no way prohibits individual plaintiffs from
pursuing their valid claims under RESPA. As noted, Congress, in its wisdom, fosters
the guarantee of legal representation under RESPA on an individual basis by allowing
for attorneys fees and costs as part of the prescribed recovery. Our only conclusion
today is that the determination must be made on a loan-by-loan basis. Class

-19-
certification being impracticable, the judgment of the district court is reversed. We
remand for further action consistent with this opinion.10

A true copy.

Attest:

CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.

10
We have been inundated with communications from counsel in this case,
mostly submitted under the guise of court rule 28(j). Many if not most of this myriad
upon myriad of filings violate both the language and spirit of the rule. Because of the
importance of this matter to the parties and the residential mortgage industry,
however, we have examined each submission and leave to another day the question
of sanctions for this type of violation.

-20-