WaMu Loses Upcharging Appeal

The plaintiffs said the bank and its subsidiaries charged them from $250 to $400 for underwriting services when Fannie Mae and Freddie Mac charged WaMu only $20 for the services. “It did not disclose to borrowers that in many cases it was performing no underwriting services, it was charging them significantly more than the cost of those services and it was retaining the difference,” the court said in the industry-adverse decision.

The borrowers also claimed that WaMu listed the “inflated” charge on HUD-1 Settlement Statement while failing to disclose that it was not the actual cost incurred. “Such a practice deceives consumers by leading them to reasonably conclude that the amount listed is the amount incurred,” the appellate court responded.

In the instances of the tax service and wire transfer fees, the homeowners said WaMu charged them fees for the services “well above its costs” without performing any additional service and without disclosing the markup to borrowers.

The plaintiffs admitted there was no express contract requiring the financial conglomerate to limit charges to actual costs. They said they were relying upon an “implied requirement” that defendants charge them pass-through costs only, a reliance that the lower court rejected in ruling against them. However, when the case went before the appellate court, that court ruled in the homeowners’ favor.

The appellate court held that the homeowners had stated viable claims under the state’s unfair competition laws and that WaMu’s acts violated RESPA and federal public policy favoring the expansion of homeownership.

California’s Attorney General signaled an interest in the case, filing a friend-of-the-court brief before the appellate court that urged the court, among other things, to decide that WaMu’s alleged business practices violate RESPA and HUD regulations. The attorney general could not provide a comment by press time.

The appellate court rejected WaMu’s claim that federal law only required that the HUD-1 statement itemize the charges imposed on the buyer and seller, pointing out that HUD describes the HUD-1 “as a statement of actual charges and adjustments to be given to the parties in connection with the settlement” or a real estate transaction.

WaMu, which did not respond to MortgageDaily.com’s request for a statement by press time, also argued that the court should not get involved in setting prices for services, especially since its lending practices are already strictly regulated.

The appellate court noted that while the Fourth, Seventh and Eighth Circuits have held that section 8(b) of RESPA does not forbid markups, the Eleventh Circuit has ruled otherwise. The court also noted that HUD has issued a policy statement that section 8(b) prohibits a settlement service provider from marking up the cost of another provider’s services without providing additional settlement services.

But the court’s decision had its detractors.

Filing a dissenting opinion, Judge Miriam A. Vogel argued that, as a federal savings association, the litigation against WaMu is preempted by federal law. She also disagreed with the majority’s interpretation of RESPA, finding that a violation could not occur unless a lender charges a fee for which the lender provided no settlement services and split that unearned amount with a third party.

Lisa D. Burden is a legal analyst for MortgageDaily.com and holds a law degree from the University of Maryland. She is currently a freelance journalist who previously wrote for Institutional Investor publications and the Baltimore Daily Record.

e-mail Lisa at: burdenlisa@yahoo.com