The Facts Surrounding Freeman v. Quicken Loans February 21, 2012 Quicken Loans Statement Quicken Loans has never charged unearned fees and never will. The company won this case on summary judgment in Federal Court on undisputed evidence that the fees Quicken Loans collected were, in fact, earned. The ruling in favor of Quicken Loans was upheld on appeal by the U.S. Court of Appeals for the Fifth Circuit. Quicken Loans, like all lenders, has and continues to offer clients the option of ‘buying down’ their interest rate by paying loan discount points. This practice is a universal standard across the lending industry and is in accordance with state and federal laws. It was proven the loan discount points collected were earned and resulted in a lower interest rate for the borrowers. The example below clearly shows the benefits of paying discount points on a mortgage: Are the plaintiffs suggesting we should not offer consumers the benefits that accompany discount points? We are confident the U.S. Supreme Court will agree these claims are absolutely meritless, just as the two previous courts before them. The Truth Behind Freeman v. Quicken Loans The Real Estate Settlement Procedures Act (RESPA) is the set of rules that govern the buying and selling of real estate. It is a relatively complex rulebook covering everything from the way lenders and vendors work together to the issuance of good faith estimates to consumers. Quicken Loans is currently involved in a hearing in front of the United States Supreme Court (Freeman v. Quicken Loans) related to a very specific aspect of RESPA. Before arriving at the United States Supreme Court, the case was reviewed in the lower courts with Quicken Loans winning every step of the way. At issue is RESPA Section 2607(b) – a piece of a complex rule with a very plain meaning. This section is dedicated to prohibiting the sharing or division of loan closing fees between two companies where the shared portion of the fee is not earned by the recipient. In other words, a lender cannot pay a “kick-back” to another party for services never rendered. The rule never discusses situations where a borrower takes issue with a fee from a company that is not split, and that the borrower later decides he wants a refund. In the Supreme Court case, three couples paid fully disclosed loan discount fees (more commonly known simply as “points”) on their mortgages. This fee was never split with a third party and was charged, along with the clients’ interest rate, as part of the overall price of the loan. Under no circumstance did these everyday actions violate any aspect of RESPA – a position we expect to be fully upheld by the high court. Below is an exact accounting of the transactions that led to this baseless suit: Three separate married couples (Freeman, Bennett and Smith) obtained residential mortgage loans from Quicken Loans in 2007. At the time they applied, each client received a number of specific disclosures describing the terms of their loans. One of the charges disclosed at that time, and ultimately charged after the loan was approved and processed, was a “loan discount fee,” a common component, along with the interest rate, of the price of the loan. These “points” are commonly used to decrease an interest rate and/or to compensate for other negative credit information. This is a common and accepted practice in the mortgage industry, and the federal government allows these types of fees to be charged. In each of the cases, the loan discount fee was disclosed to the clients on the Good Faith Estimate, consistent with RESPA guidelines, which was then signed by the clients in advance of closing. The estimated fees were presented as a percentage of the loan amount that exactly matched what each person ultimately was charged. Months after the loans closed, the clients decided they wanted to pay less than they had agreed, so they sued Quicken Loans. In separate lawsuits in Louisiana State Court, they falsely claimed the company had imposed charges without performing services in return, claiming the fees were “unearned.” Missing from their suit was any claim that any of the loan discount fees were divided or shared among multiple providers. They also never argued that the loans they obtained were unreasonably priced. These three cases were consolidated and moved to Louisiana’s Federal Court. The court, in summary judgment, ruled in favor of Quicken Loans. It stated that RESPA cannot be used to address fees that lenders charge as part of its loan pricing because the statute only regulates conduct involving the sharing or division of charges among two or more companies. Further, and just as important, Quicken Loans also proved that the loan discount fee in each instance was not unearned at all, because the fee was a component of the loan terms and pricing structure – a fact the clients conceded. In Federal Court, the clients could not offer an explanation as to why they were claiming that the fees were entirely unearned. The facts in this case indicate that the clients freely agreed to pay the loan discount fees after the charges were disclosed to them multiple times before closing. The fees were earned as a component of the price the clients willingly paid in order to obtain the reduced interest rate they wanted. Never through the process did the clients seek to rescind their loan (a right that two of the three couples could have exercised within three days after closing). A Court of Appeals found the lower court’s ruling was correct. The Supreme Court case focuses on the specific wording of RESPA. It will have to decide whether the law addresses only the conduct of companies splitting closing costs or the larger terms of a lender’s agreement with their clients in the pricing of a loan. Quicken Loans looks forward to the Court’s decision. Even if the Supreme Court sides with the clients on the single issue being reviewed (if a fee split is required to constitute a RESPA violation), the case will still need to be reviewed by the lower courts to review the facts. Since no unearned fees were ever charged in this case we are confident Quicken Loans will ultimately prevail.