Moreno v. Summit Mortgage Corp.

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

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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

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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

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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.

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 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.

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 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)).

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 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.

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