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Financial Services Law Insights and Observations

Louisiana Appellate Court Holds YSP Included in HOEPA Points and Fees Test Calculation

State Issues

On January 26 the Court of Appeals of Louisiana, Fifth Circuit held, among other things, that a yield spread premium (YSP) should be included in the points and fees calculation under the Home Ownership and Equity Protection Act (HOEPA). Bank of N.Y. v. Parnell, No. 09-CA-439, 2010 WL 291752 (La. Ct. App. Jan. 26, 2010). In Parnell, the plaintiff bank filed foreclosure proceedings against the defendant borrower. In defense the borrower argued that the mortgage was void—and that foreclosure on the property was, therefore, wrongful—because the bank failed to provide material disclosures required under HOEPA. The court reversed the lower court’s dismissal of the plaintiff’s HOEPA claim, agreeing with the borrower that the total amount of points and fees on the loan exceeded eight percent and, thus, triggered HOEPA’s disclosure requirements. Importantly, the court concluded that the yield spread premium (YSP) charged to the borrower should have been included in the points and fees test calculation, as it constituted “points and fees payable by [the plaintiff] at or before closing.” According to the court, a YSP, while financed over the course of a loan, should be included in the points and fees test calculation because it is, in fact, “payable” at the time of loan closing. This court decision is at variance with the Federal Reserve Board’s Regulation Z, which implements the Truth in Lending Act (including HOEPA). The court additionally affirmed the dismissal of the borrower’s RESPA claim arising out of the bank’s alleged failure to respond to the borrower’s qualified written request for an accounting. The court reasoned that because the bank was not a servicer, the bank was not liable under the servicer provisions of RESPA pertaining to qualified written requests. The court also affirmed the lower court’s dismissal of the borrower’s Louisiana Unfair Trade Practices and Consumer Protection Law (LUTPA) claim, holding that the bank was covered by LUTPA’s exemption for financial institutions subject to federal banking regulation. Finally, the court reversed the lower court’s dismissal of the borrower’s claims for damages under state law for wrongful seizure of the property and wrongful acceleration of the note. In doing so, the court emphasized that issues of material fact still existed as to whether the bank complied with contractual requirements in accelerating the sums secured by the defendant’s mortgage.

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