More home sellers on the East Coast are getting in on the commission lawsuit action.
Plaintiffs in Florida and Pennsylvania filed lawsuits on Monday, accusing real estate industry players of allegedly colluding to artificially inflate real estate agent commissions. Both lawsuits are seeking class-action status.
Similar to the other commission lawsuits, the latest two take aim at the National Association of Realtors’ Participation Rule, which requires the listing broker to make a blanket offer of compensation to the buyer’s broker to list the property on the MLS.
The Florida commission lawsuit was filed by Parker Holding Group, a Panama City-based firm that sold homes in March and August 2021, in Circuit Court of the 11th Judicial Circuit in and for Miami-Dade County.
Defendants in the lawsuit include the Florida Association of Realtors, the nation’s largest state Realtor group with 238,000 members, and 16 large local brokerages, with agent counts ranging from 655 to nearly 4,000. Brokerages named in the suit include The Keyes Company, LPT Realty, Charles Rutenberg Realty, Charles Rutenberg Realty-Orlando, United Realty Group, The K Company Realty, Florida Homes Realty & Mortgage, Dalton Wade, Avanti Way Realty, MVP Realty Associates, Florida Realty of Miami, Lifestyle International Realty, Watson Realty, Premiere Plus Realty, Future Home Realty and Michael Saunders & Company.
Like the other commission lawsuits, the Parker suit alleges that the defendants colluded “to impose, implement, and enforce anticompetitive restraints that cause home sellers in Florida to pay inflated commissions in connection with the sale of their homes.”
Because this is a state lawsuit, the complaint claims the alleged behavior is in violation of the Florida Antitrust Act of 1980 and the Florida Deceptive and Unfair Trade Practices Act, and not the Federal Sherman Antitrust Act.
The complaint names local Realtor associations, MLSs and the brokerages’ employees and agents as co-conspirators, accusing them of using their control over the state’s Realtor association-affiliated MLSs to impose rules from NAR that allegedly promote anticompetitive practices.
“In a raw demonstration of market power, the Florida Realtor MLSs overturn the natural order of a rational price system where home sellers and home buyers each separately bargain and pay for the services provided to each of them,” the complaint alleges.
The proposed class for the suit includes all Florida citizens who have sold a property through one of the state’s Realtor association-affiliated MLSs and paid a buyer broker commission between Dec. 4, 2019 and the present.
The plaintiffs are demanding a jury trial, treble damages, coverage of the cost of the suit and a permanent injunction “to permanently enjoin and restrain Defendants from establishing the same or similar rules, policies, or practices as those challenged in this action in the future.”
In an email, Florida Realtors’ general counsel Juana Watkins wrote that the group denies these allegations.
“Florida Realtors will defend against this action,” Watkins wrote. “Florida Realtors® stands by the value of the professional expertise that its members provide to their clients. Going forward, Florida Realtors® does not comment on pending litigation.”
Juan Baixeras, the broker/owner of family-run Florida Realty of Miami, said he is hopeful that the state Realtor association will help him out and offer guidance.
“These allegations are absurd. It’s just law firms trying to cash in on the previous success of the other lawsuit,” he wrote in an email. “We have never fixed prices. Our commission has always been negotiable. We are a 100% commission office, we get paid a flat fee of $355 no matter what commission comes in. So, price fixing commissions would not help us at all, we would still make $355.”
Another commission lawsuit in Pennsylvania was filed by Homesellers Spring Way Center, John and Nancy Moratis and Nancy Wehrheim in U.S. District Court for the Western District of Pennsylvania. Defendants in the suit include West Penn MLS, a local broker-owned MLS that is not affiliated with NAR, and eight local brokerages, including Berkshire Hathaway HomeServices The Preferred Realty, NRT Philadelphia LLC, Piatt Sotheby’s International Realty, NextHome PPM Realty, NextHome Dynamic, Realty One Group Gold Standard, Realty One Group Platinum and Realty One Group Horizon.
Despite not being affiliated with a Realtor association, West Penn MLS has adopted a rule similar to NAR’s Participation Rule.
The complaint alleges that the rule is anticompetitive because “it compels the seller to compensate the broker representing the purchaser even though that broker should be working for the purchaser, not the seller; it mandates a ‘blanket offer,’ meaning that the same compensation must be offered to every buyer’s broker, regardless of skill, experience, or the services provided; and it has the effect of encouraging ‘steering’ by buyer-brokers, because it incentivizes them to direct their clients to properties with higher commission offers.”
The Center suit complaint cites the Sitzer/Burnett case, stating that the defendants’ alleged practices “are not unique; rather, they are part and parcel of nation-wide collusion within the real estate industry to maintain inflated commissions.”
The lawsuit also names co-conspirators, including “local and state Realtor associations,” as well as “other brokerages within that geographic area.”
The proposed class for the lawsuit includes all home sellers who used a listing agent or broker affiliated with or employed by one of the brokerage defendants in the sale of a home listed on the West Penn MLS, and who paid a commission to the buyer’s broker.
This suit also demands a jury trial, treble damages, coverage of the cost of the suit and a permanent injunction “enjoining Defendants from (1) requiring that sellers pay the buyer broker and (2) continuing to restrict competition among residential real estate brokers in the manner set forth above,” according to court records.
The two new commission lawsuits are just the latest in an ever-growing pile of copycat cases that have been filed since late October when a Missouri jury found the real estate industry liable for colluding to artificially inflate agent commissions in the Sitzer/Burnett trial. A motion for injunctive relief has yet to be filed in that lawsuit and a final ruling from the judge is not expected until spring 2024.
Editor’s note: HousingWire reached out to all of the defendants in the latest lawsuits for comment and will update this story as comments are returned.
“This case has now been pending for more than four and a half years, and we’re ready to move forward and towards trial,” he said on the call.
Ethan Glass of Cooley, an attorney for the National Association of Realtors (NAR), took a different view and urged Wood to not set a date just yet, stating that it is “way premature” as the court has yet to even take motions for summary judgment, “let alone decide them.”
Glass also asked if NAR could let the court know in a week or so if the trade group would like the court to extend its Dec. 19, 2023, deadline for submitting things like motions for summary judgment.
“We are still analyzing what the consequences of the [Sitzer/Burnett] jury verdict are,” Glass said.
A final ruling on the Sitzer/Burnett suit is not expected until April or May 2024, however, the plaintiff’s motion for injunctive relief must be filed before Jan. 8, 2024. The three defendants who were present at the trial, NAR, Keller Williams and HomeServices of America, have all vowed to appeal the verdict.
Glass added that NAR is unsure if there may or may not be reasons to extend the deadline, as the trade group and its counsel are still looking into things.
Braun argued that legal issues still playing out in the Sitzer/Burnett suit was not a reason to delay the trial in the Moehrl case.
Surprisingly, this view was supported by Timothy Ray of Holland & Knight, who is representing Keller Williams. Ray stated that he believes there were “serious errors” in the Sitzer/Burnett trial and that that trial should not be held up as a “standard for how we should go forward in Moehrl.” He added that Keller Williams would like to see the “Moehrl case to stand on its own consistent with the law” in its district and circuit.
Wood agreed with Ray’s view, stating: “I don’t think the fact that the other case has proceeded to trial and there are certain legal issues that will be challenged post-trial … affects what I need to do to keep the case moving here. It is a different case with some different issues, some overlapping issues, in a different circuit. So, I tend to agree with Mr. Ray’s point that this case should stand on its own.”
Looking ahead, Wood said she thought setting a trial date as soon as “it’s reasonable to do so makes sense.”
In the meantime, the parties have until Jan. 22, 2024, to submit a joint state report, in which they are to estimate the number of trial days and testimony hours they anticipate needing. Wood also instructed that the parties should take into account that Anywhere and RE/MAX are unlikely to participate in the trial if their settlements receive final court approval.
Filed in 2019, the Moehrl lawsuit, like the other commission lawsuits, take’s aim at NAR’s Participation Rule, which requires listing brokers to make a blanket offer of compensation to buyers’ brokers in order to list a property on the MLS.
The home seller plaintiffs allege that NAR and the corporate brokerage defendants have conspired to artificially inflate agent commissions, increasing the costs shouldered by home sellers. The suit received class-action status in March 2023.
To the native Wintu people it was Bohem Puyuik, the “Big Rise,” and no wonder. Mt. Shasta towered above everything else, her loins delivering the natural springs and snowmelt that birthed a great river.
The Sacramento River provided such an abundance of food that the Wintu and many neighboring tribes — the Pit River, Yana, Nomlaki and others — had little to fight over. They thrived in pre-colonial times, on waters that ran silver with salmon, forests thick with game and oaks heavy with acorns.
But centuries of disease, virtual enslavement and murder wrought by European and American invaders scrambled the harmony that once reigned along the Upper Sacramento River.
Today, three tribes here are locked in a bloodless war. At issue is a proposal by one Indigenous group to expand and relocate its casino and whether the flashy new gambling hall, hotel and entertainment center would honor — or desecrate — the past.
The casino envisioned by the Redding Rancheria and its 422 members would rise nine stories on 232 acresalong Interstate 5. The rancheria — home to descendants from three historic tribes — began planning the development nearly two decades ago, envisioning a regional magnet for tourists and gamblers.
But the proposal has been buffeted by influential opponents, including the city of Redding, neighborhood groups and the billionaire next door — who happens to be the largest private landowner in America. The naysayers list a cavalcade of complaints against the new Win-River casino complex, saying it would despoil prime farmland, exacerbate traffic, increase police and fire protection costs and threaten native fish in the Sacramento River.
Those complaints have helped stall, but not kill, the project, whose fate rests almost solely in the hands of the Bureau of Indian Affairs in Washington, D.C. And now the BIA’s obscure bureaucrats have been confronted with an explosive new charge from two neighboring tribes: that construction of the casino would desecrate what the tribes say should be hallowed ground — the site of an 1846 rampage by the U.S. Cavalry that historians say probably killed hundreds of Native people.
The Sacramento River massacre has not received the attention of other atrocities of America’s westward expansion, such as the one in 1890 at Wounded Knee, S.D., where U.S. troops killed as many as 300 Lakota people. Estimates of the carnage, recorded over the decades from witness accounts and oral tradition, range from 150 to 1,000 men, women and children slaughtered along the banks of the Sacramento River.
If the higher estimates of the death toll are correct, it would rank as one of the largest single mass killings of Indigenous people in American history.
“In my heart, I find it hard to believe that there are Wintu people that are willing to build a casino on … the blood-soaked dirt of the massacre site,” Gary Rickard, chair of the Wintu Tribe of Northern California, told a state Assembly committee in August. “There are dozens of other places along the I-5 corridor and the Sacramento River.”
Redding Rancheria Chair Jack Potter Jr., himself part Wintu, called the claim that his tribe would build its casino on the massacre grounds “a slander that will not be easily forgotten.” He told state lawmakers that the real massacre site is miles away. Rancheria leaders said their opponents have manufactured the controversy for a less honorable reason: to block what would be a sparkling new competitor.
“Gaming in Indian country can be a tide that raises all of our canoes,” insisted Potter, who appeared at times to fight back tears as he spoke at the Sacramento hearing. “We should not battle against one another, in that spirit.”
A showcase for compelling storytelling from the Los Angeles Times.
Friendships that go back decades and tribal ties of a century or more have been imperiled by the casino furor. Native people normally aligned against a hostile or indifferent U.S. government — “We’re all the children of genocide,” as one elder put it — have watched sadly as their conflicts turn inward.
It’s a dynamic that has played out before. Robbed of their ancestral lands, tribes now sometimes fight when one tries to claim new territory, often as a base for a lucrative modern endeavor: gambling.
The friction is exacerbated by the peculiar history of the Redding Rancheria — and by opponents’ eleventh-hour invocation of the Sacramento River massacre, 19 years after the rancheria began to assemble parcels for the project.
The Redding Rancheria refers to a nearly 31-acre stretch of land near the south end of Redding that the federal government bought in 1922 for “homeless Indians” who came to the area as seasonal workers for ranches and orchards. The rancheria sits in a relatively obscure location compared with the interstate-adjacent site of the proposed casino, more than three miles by car to the northeast.
In 1939, the Wintu, Pit River, Yana and other Indigenous peoples formed a rancheria government. It was recognized by the United States. But in 1958, an act of Congress “terminated” recognition of multiple California groups, including the Redding Rancheria, in an attempt to force Indians to disperse into the general population. It took a landmark 1983 court settlement to formally restore recognition of 17 rancherias, including the one in Redding.
The result is that there are Redding Rancheria members with Wintu blood, like Potter, 52, who firmly support the casino, while other Wintu descendants who are not descended from the original rancheria families, like Rickard, 78, adamantly oppose it. Rickard grew up with Jack Potter Sr. and has known his son since he was a boy.
Cordiality prevails, at least outwardly, when Rickard and Potter meet today. But the bad blood between their groups has become fierce, exacerbated by the yawning wealth disparity between the rancheria and the Northern Wintu.
Rancheria members have thrived largely because of the success of their existing Win-River Resort & Casino, which operates 550 slot machines, a dozen table games, an 84-room hotel and an RV park.
The complex is the biggest income producer for the rancheria, which also owns a Hilton Garden Inn and a marijuana dispensary in Shasta County. Sources familiar with the tribe said each enrolled member receives a monthly “per capita” payment of at least $4,000 and perhaps as high as $6,000.
The rancheria’s chief executive, Pitt River descendant Tracy Edwards, 54, declined to discuss the amount of the payments.
That income, along with health clinics and other benefits, makes the Redding Rancheria members the envy of Indigenous groups with comparatively paltry assets. Rickard’s Northern Wintu claims roughly 560 certified members, but like many groups across America, the tribe has been laboring for years and still has not received formal recognition from the U.S. government. That means the tribe can’t put land into trust, a prerequisite to casino development and also a shield against federal, state and local taxes.
“We don’t have the resources in order to obtain the things we need,” said Shawna Garcia, the Northern Wintu’s cultural resources administrator. “We don’t have the revenue to assist our members with things like college, housing and other assistance.”
Historians and ethnographers say the Wintu were the predominant tribe around the site proposed for the casino complex, an expanse of meadow and scrubland that locals dub the Strawberry Fields because of its agricultural history. And Rickard questioned why the “pure-blood Wintu people” he represents have been left to struggle, while the rancheria — representing an amalgamation of tribal groups — stands poised to create an even bigger cash cow with its new casino.
Rancheria leaders like Edwards, a UC Davis-trained lawyer, have emphasized how the tribal group has supported Native and non-Native people, both as one of the largest employers in Shasta County and through its charitable foundation.
In just one year, 2018, the rancheria said it gave more than $1.2 million to community organizations, helping serve the homeless and victims of the Carr fire. During the early phase of the COVID-19 pandemic, the rancheria donated $5,000 each to 60 businesses struggling to stay afloat.
At a cost of $150 million, the rancheria’s new casino would feature 1,200 slot machines — more than double the number at its current casino — and with 250 rooms, the new casino hotel would be more than triple the size of the existing hotel. The tribal group has pledged to close its current Win-River casino when the new one opens.
The rancheria’s outsized community presence has created substantial goodwill around Redding, but a portion of residents have stepped forward — via petitions and ballot measures — to express disdain for large developments they feel could harm the rural character of their community.
Among the more powerful opponents is Archie Aldis “Red” Emmerson, president of logging giant Sierra Pacific Industries, whose sprawling estate looms along the Sacramento River, just south of the casino site.
In 2020, an Emmerson-allied company purchased property from the city of Redding that included a portion of a road that would be the north entry to the casino site and created an easement that would have barred access to the rancheria land for all but agricultural purposes. The easement effectively would have thwarted the casino by blocking vehicle access to the development.
But in 2022, a Shasta County Superior Court judge voided the deal, saying that in selling the land (for just $3,000 to the billionaire) the city had violated its “own processes, procedures and the relevant law.” The ruling nullified the easement, preserving the rancheria’s unrestricted access to the property.
The Redding City Council and neighboring homeowners have maintained their opposition to the project for years, while a new conservative majority on the Shasta County Board of Supervisors recently reversed the county’s earlier objections. The supervisors supported the casino, despite admonitions from the sheriff, fire chief and county counsel that the agreement with the rancheria did not provide sufficient compensation to cover the increased costs of serving the big development.
The rancheria agreed to make one-time payments totaling $3.6 million to support Shasta County, the Sheriff’s Department and fire and emergency services. That initial infusion would be supplemented by recurring payments: $1,000 for each police service call and $10,000 for each fire/emergency service call.
No issue has unsettled intra-tribal relations, though, like the debate flowing out of the terrible events along the Sacramento River 177 years ago.
Oral histories of the Wintu and neighboring tribes recall how Native families and elders had gathered along the river known as the Big Water each year in early April for the spring salmon run. Traditionally, the season signaled rebirth.
But Capt. John C. Fremont had other ideas.
Fremont diverted his men from their ordered assignment: completing land surveys in the Rocky Mountains. The Americans instead went adventuring to California, where, in the spring of 1846, they responded to sketchy claims from settlers that they were endangered.
About 70 buckskin-clad white men set upon the Native people, the locals far outgunned by the invaders, each toting a Hawken rifle, two pistols and a butcher knife, according to UCLA historian Benjamin Madley‘s detailed account of the massacre.
The horsemen completed their grisly work with such evident pride that legendary frontiersman Kit Carson later bragged that the coordinated assault had been “a perfect butchery.”
The massacre marked the beginning of “a transitional period between the Hispanic tradition of assimilating and exploiting Indigenous peoples and the Anglo-American pattern of killing or removing them,” according to Madley’s “An American Genocide: The United States and the California Indian Catastrophe.”
Fremont (later a U.S. senator from California and a Republican presidential candidate) would say that his party attacked the natives because of reports of an “imminent attack” upon settlers. But the “battle” was one-sided, with the federal troops suffering no known casualties. Afterward, according to Madley’s account, Fremont’s men feasted on the Native people’s larder of fresh salmon.
In the nearly two centuries since, the tragedy would be more forgotten than remembered. There is no historical marker around Redding noting the event.
The Wintu people believed to have been the principal victims have preserved memories of the mass killing in their oral history. But no ceremony marks the atrocity. And at the Wintu cultural resource center in Shasta Lake City, a wall-size timeline of the group’s history makes no mention of the 1846 bloodshed.
There’s also the now-pressing question — pushed to the fore by the casino feud — about precisely where the massacre occurred. The Northern Wintu and another outspoken opponent, the Paskenta Band of Nomlaki Indians, insist that the Strawberry Fields property was a key location in the atrocity.
The Paskenta commissioned a study by a retired anthropologist from Cal State Sacramento that drew on research from the late 1800s by a linguist from the Smithsonian Institution who, in turn, got much of his information from a Wintu elder who survived the massacre. The report, by Dorothea Theodoratus and a colleague, said that the “center” of the massacre was “opposite the mouth of Clear Creek” in the Sacramento River, a point roughly two miles south of the proposed casino location.
But other accounts from participants and witnesses said Fremont’s soldiers chased down victims after the initial assault, leaving the exact range of the bloodshed unknown. The Theodoratus report says that six villages, including two on the proposed casino property, were so thoroughly intermingled that all “would have had some direct involvement with that massacre.”
Andrew Alejandre, chair of the Paskenta Band, told the Assembly Governmental Organization Committee in August that his tribe is seeking to have the state and federal governments designate the Strawberry Fields a sacred site, off-limits to development. Alejandre, 35, said his tribe vehemently opposes building a casino “on top of men, women, children and elders. The spirit of these ancestors … Let them rest!”
In rebuttal, Potter and rancheria CEO Edwards note that during the many years that they and others have pursued developments in the region, the rival tribes never mentioned the massacre. Divisive fights over a proposed auto mall and a sports complex (both scrapped) came and went without any discussion about desecration of a mass grave site.
“I would never disrespect the remains of my ancestors,” Potter said.
Fifty miles south of Redding in rural Corning, the 288-member Paskenta Band opened the Rolling Hills Casino and Resort two decades ago. The luxe gaming hall is just one part of an economic surge by the tribe, which has also opened an equestrian complex, an 18–hole golf course, a 1,400-acre gun and hunting center and a 3,000-person amphitheater, where Snoop Dogg performed in May.
Potter charged that the fight over the historic massacre is really a ploy by the flourishing Paskenta to squelch the Redding Rancheria’s hopes for a shimmering destination casino “because of the mistaken belief that it … will cut into the profits of their gaming facilities.”
Paskenta’s Alejandre, a designer who once ran a clothing company, denied that is the case.
While representatives for the Paskenta and Northern Wintu tribes bashed the casino proposal at the August hearing, representatives of at least eightother California tribes argued in support of the Redding Rancheria. One said the Redding group had proved itself a good steward of cultural resources.
Another speaker at the hearing was Miranda Edwards, the 28-year-old daughter of the rancheria CEO. The Stanford-educated Edwards and her mother spoke about the importance of moving the tribal group forward for the “Seventh Generation,” future descendants whose livelihoods must be planned for today.
“We work hard every day to provide for this rural community and make it the best that we can for everyone that lives there,” Miranda Edwards told legislators. “It’s disheartening to hear from those that choose not to see that. But it will not stop our work.”
Potter, the rancheria’s chairman, had a sardonic take on the dispute.
“We always talk about crabs in a pot,” Potter said. “We are like all these crabs, stuck in a pot. When one tries to get out of the pot, all the others reach up and pull him back in.”
Will arguments about the Sacramento River massacre sway the final outcome of the Redding Rancheria’s casino quest? A BIA spokesman said only that “these issues are under review.” Nearly two centuries after representatives of the U.S. military decimated a civilization here, the federal government still retains ultimate authority over the fate of Native people.
Watch L.A. Times Today at 7 p.m. on Spectrum News 1 on Channel 1 or live stream on the Spectrum News App. Palos Verdes Peninsula and Orange County viewers can watch on Cox Systems on channel 99.
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Under the law, the bureau receives funding from the Federal Reserve. This structure has been described as different from other federal agencies, which typically receive funding through congressional appropriations processes, a CBS News report said. In fiscal year 2022, the CFPB received around $641.5 million in funding from the Fed, below the inflation-adjusted cap of … [Read more…]
LAS VEGAS – With mortgage rates headed to 8%, the current housing slump is unlikely to reverse course until 2025, due to the Federal Reserve’s continued ratcheting up of interest rates, mortgage experts said at a conference in Las Vegas.
Analysts continue to warn about overcapacity in the industry with too many lenders and employees to support current origination volumes.
Federal Reserve Chair Jerome Powell signaled last week that interest rates need to stay higher for longer to tame inflation and that it could raise interest rates once more this year. The Fed’s policies have hit potential homebuyers the hardest as mortgage rates approach their highest levels in 23 years, analysts said.
“If the Fed keeps rates where they are today, then I think you’re going to easily see 8% mortgages because the survivors in the mortgage market — once we get rid of another 50% of capacity — are going to want to make money and that’s how they’re going to do it,” said Christopher Whalen, chairman of Whalen Global Advisors, on Tuesday at the National Mortgage News Digital Mortgage conference in Las Vegas.
Whalen was joined by Mark Calabria, a senior advisor at the Cato Institute and the former director of the Federal Housing Finance Agency, in a debate about current public policy and its effect on the mortgage market.
Calabria said the main obstacle to buying a home is finding a house that is affordable. He questioned the Biden administration’s public policy approach, which is focused primarily on providing access to credit to low and moderate-income communities at a time when mortgage rates are above 7% and home prices are still rising due to a lack of inventory.
“There’s just too much tension in Washington where the sense is that we’re going to make the mortgage market and mortgage policy the answer to all these other unrelated things which are real — there are very real social injustices we should fix — but the mortgage market is not the solution for all of them,” Calabria said. “I worry that mortgage policy is bearing the weight of trying to fix a number of things that really have very little to do with the mortgage markets.”
Calabria, the author of “Shelter from the Storm: How a COVID mortgage meltdown was averted,” described how he resisted repeated calls for a bailout of mortgage servicers early in the pandemic. The Federal Reserve had stepped in with a broad array of actions including lowering interest rates, sparking a massive refinance boom in 2020 and 2021. Calabria then applied an adverse market fee to refinances but exempted lower-income borrowers.
Julian Hebron, founder of the Basis Point, a consulting firm, and veteran mortgage executive, questioned whether the FHFA should be setting pricing in the mortgage market and asked whether it’s “appropriate for GSEs to raise fees to build capital to prepare for downturns.”
Calabria said the government-sponsored enterprises should be charging so-called g-fees for guaranteeing the timely payment of principal and interest on mortgage-backed securities because doing so covers projected credit losses from borrower defaults over the life of a loan.
“Ultimately, I don’t think the regulator should be driving prices,” Calabria said.
He also said Fannie Mae and Freddie Mac will remain in conservatorship for the foreseeable future but also envisions a way out of government control — by having the GSEs raise fees.
“If you’re a CEO of one of these companies, it sucks being micromanaged, and I know that as somebody who micromanaged the CEOs,” he said. “If I was the CEO of one of these companies and I had the freedom to do it, I would jack up G-fees so I can build capital and get out two or three years earlier than I would otherwise. Because again, it sucks being in conservatorship for these companies, at least at the top.”
Calabria took office in 2019 and sought to end government control over Fannie Mae and Freddie Mac, which guarantee 70% of the roughly $12 trillion U.S. mortgage market. Though Calabria was confirmed by the Senate to a five-year term, he was fired in 2021 by President Biden following a Supreme Court ruling. Biden named Sandra Thompson as Calabria’s successor.
Whalen laid the blame for the current high interest rate environment squarely on the Fed and its actions in dropping rates in response to the pandemic. Roughly 90% of homeowners currently are locked in to mortgage rates below 6% and many are paying less than 4% on loans that were refinanced when the Fed held interest rates near zero. As a result, homeowners are not selling their properties, resulting in record-low inventory and a general gumming up of the mortgage market in a high-rate environment.
“The trouble is that the Fed’s actions through COVID distortéd the market so much that lenders are losing 200 to 250 basis points on every loan they make,” said Whalen. “Even though the agencies and the FHA subsidize the cost of mortgages, that’s really what they do, it’s not about getting a mortgage, it’s about how much does it cost every month, which goes across every product in America.”
Many forecasts that are well-founded in data have been upended by major events, such as COVID or a bank failure. Whalen said that the only way mortgage rates could get down to 6% or 6.5% in the near-term is if there is another bank failure.
“If we see another surprise in the banking market, the Fed is going to be forced to back off,” said Whalen, adding that he is concerned that interest rates are making asset prices go down. “If we see another failure, they are going to probably have to turn to the Treasury for support or tax the industry to raise cash because there won’t be three or four buyers out in the room.”
The Supreme Court is taking on a case that questions the constitutionality of how the Consumer Financial Protection Bureau (CFPB) is funded. Oral arguments are set for Oct. 3.
The CFPB is a consumer watchdog agency funded by the Federal Reserve System, not Congress. This funding mechanism was established by a Democrat-led Congress and is meant to safeguard the agency’s funding against changes in the political climate.
The case against the CFPB was brought by the Community Financial Services Association of America and the Consumer Service Alliance of Texas, which both represent the payday loan industry. The suit alleges that the CFPB’s funding mechanism is unconstitutional under the Appropriations Clause of the Constitution. That clause says “no money shall be drawn from the Treasury, but in consequence of appropriations made by law.”
Last year, the U.S. Court of Appeals Fifth Circuit in New Orleans took on the case and in October 2022, the judges in that panel unanimously ruled against the CFPB.
If the Supreme Court upholds the Fifth Circuit’s ruling it could bring into question all previous enforcement actions the agency has taken since its inception. Such a decision could also stymie the agency’s ability to carry out its mission in the future.
What is the CFPB?
The CFPB was formed in the wake of the 2008 financial crisis, under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. Its mission is to implement and enforce federal consumer financial law. It does so by holding accountable the companies that market these types of products such as payday loans, credit cards, student loans and mortgages. It additionally collects consumer complaints.
The CFPB can also take legal action against companies. From 2012 to 2022, the agency has filed 322 public enforcement actions, resulting in more than $16 billion in relief to consumers and $3.7 billion in fines.
How much funding does the CFPB receive?
In fiscal year 2023, the CFPB has $3.57 billion in budgetary resources, which represents roughly 0.006% of the $6.4 trillion fiscal year 2023 U.S. federal budget. But the agency planned to spend much less — about $723.3 million, which represents about 20% of its overall resources.
What is the case against the CFPB?
The question of the CFPB’s funding wasn’t the primary focus of the original lawsuit — its 2017 payday lending rule was. That rule prevents short-term lenders from lending to consumers without reasonably determining if they can repay the debt. It also prevents lenders from withdrawing payments directly from consumers’ bank accounts when payments have been missed without permission of the consumer.
The suit originated in April 2018, was eventually struck down and then appealed in the Fifth Circuit Court. There, the panel of judges didn’t side with the two plaintiffs on their claims against the 2017 payday lending rule, but they did agree with the plaintiffs’ claim against the CFPB’s funding mechanism.
In the Fifth Circuit Court’s decision, it said the “Bureau’s unique, double-insulated funding mechanism” violated the constitution’s separation of powers.
Soon after the Fifth Circuit Court’s decision was handed down, the Biden Administration appealed to the Supreme Court. On Feb. 27, the Court agreed to hear the case in its 2023-2024 session.
What happens next?
The Supreme Court will hear oral arguments on Oct. 3 for Consumer Financial Protection Bureau v. Community Financial Services Association of America. However, a decision is not expected until late spring 2024.
After looking at listings online, a prospective homebuyer typically reaches out to a real estate agent who then gives them a list of recommended lenders and LOs. But three multibillion-dollar class action antitrust lawsuits looming over the real estate industry may soon reshape how buyers interact with agents.
Some of the nation’s largest real estate brokerages, including Keller Williams, RE/MAX, HomeServices of America as well as the National Association of Realtors, are facing three class action lawsuits (NAR is only named as a defendant in two lawsuits) that could result in the industry paying out tens of billions in damages. Anywhere Real Estate just settled two of the cases for a total of $83.5 million, which suggests major changes could be on the horizon.
The three class action suits Moehrl, Sitzer/Burnett, and Nosalek, named after their lead plaintiffs, take aim at NAR’s Participation Rule, which requires listing agents to make a blanket offer of compensation to buyers’ agents in order to list the property on a Realtor-affiliated multiple listing service (MLS). According to the plaintiffs, commission sharing inflates the costs for consumers, in violation of the Sherman Antitrust Act. NAR, however, contends that the current commission structure, which has been in place for over 100 years, actually benefits consumers.
“The buyers want the listing brokers to pay their buyer representative so they can have the most money invested in their down payment and get the best loan terms and rates possible,” Katie Johnson, NAR’s chief legal officer, said. “Sellers want their listing broker to pay the buyer broker’s compensation because it will result in the most buyers being able to afford their house.”
At a time when affordability is constraining first-time buyers from entering the market and interest rates are still expected to climb, “it’s going to do nothing but hurt the potential buyer,” argued Michael Borodinsky, a vice president and branch manager at Caliber Home Loans.
“You’ve got current economic conditions that are not opportunistic for a homebuyer right now, inflation is still out there and it’s all constraining buyers’ ability to spend. So, if you take that, you add that to where mortgage rates are, which are currently at 20 year highs, you add that to the fact that as of today, there is a still a very, very big problem with housing inventory, which has put prices artificially higher than they probably should be in terms of valuation, the buyers are just going to be saddled with more pain”
It will be months or years until the final verdict in the three lawsuits comes out, but there will be clear winners and losers from the outcome, loan officers and housing industry experts said in interviews with HousingWire. If the traditional practice of sellers paying for both sides of the agents ends, housing agencies will have to weigh in to determine ways for buyers to finance their agents’ comp, LOs noted.
Reshaping the home selling and buying process
Although Johnson anticipates a lengthy appeals process with all of these lawsuits, round one of the fight is quickly approaching. Sitzer/Burnett is scheduled to head to trial in mid-October and Moehrl is expected to head to court in the first half of 2024 with Nosalek most likely following shortly thereafter.
When the day comes that a final verdict is reached, Steve Murray, the co-founder of RealTrends Consulting sees three possible outcomes.
“Worst case scenario, the broker representing the buyer will have to negotiate their own fee with their client and the seller can no longer be compelled to make a blanket offer of compensation in order to list on the MLS,” Murray said.
“The second thing that could happen, is that more and more buyers will go directly to the listing agent, in which case they are clearly unrepresented. The third thing that would happen is a whole new kind of buyer brokers arise that charge an hourly flat fee to represent buyers,” according to Murray.
In light of Anywhere’s recent settlement, Murray believes the other defendants may also consider settling the suits.
But Ken Trepeta, the president of RESPRO, is holding off on making any predictions. It might depend on the terms spelled out in the settlement agreement, which still aren’t public yet, he said.
“If they are settling this and it goes away and they don’t admit wrongdoing and there is no requirement to change policies,” he said. Potential damages in the Sitzer/Burnett suit are anticipated to be up to $4 billion, while damages in the Moehrl suit could reach up to $40 billion.
(An attorney for the plaintiffs in the Moehrl case said Anywhere will be making significant changes to its policies, but did not offer specifics.)
For its part, NAR says it is not giving up the fight.
“Settlement is always an option for any party in litigation. NAR’s commitment to defend ourselves in court remains unchanged and we are confident we will prevail in proving the lawfulness of the rules under attack. Pro-competitive, pro-consumer local MLS broker marketplaces ensure equity, efficiency, transparency and market-driven pricing options for home buyers and sellers,” Mantill Williams, NAR’s vice president of communications, wrote in an email to HousingWire.
If buyer brokers and agents are no longer involved in most real estate transactions, as Murray suggests is a possibility, LOs and lenders who rely on agent referrals for transactions could have a smaller target group to focus on.
“There will likely be fewer Realtors, the sales volume will be handled by fewer Realtors. But if you’re an originator, that simply means that your target group is now smaller,” said Brian Hale, CEO of Mortgage Advisory Partners. “If you’re not dealing with the top producing agents or teams in the industry, you may find that your client has gone away.”
Loan officers may increasingly place more importance on reaching consumers directly especially when a buyer takes initiative in the homebuying process rather than relying on agents.
“If there isn’t a buyer’s agent involved – who’s just going to oversee step-by-step – I think consumers are going to take a little bit of that control back because they’re not willing to pay an agent for that level of hand holding and walking them through. So, they’ll reach out and they’ll find the companies that are publicly known as consumer-direct lenders,” said Mike Roberts, the co-founder of City Creek Mortgage.
TV, billboard and radio ads are traditional ways to reach consumers directly in hopes that borrowers will think of the lender when it’s time to buy a home, Roberts explained.
As industry players have begun preparing for a variety of potential outcomes in these lawsuits, some agents say they have seen lenders work to develop their consumer-facing marketing.
“I have seen some of the top loan officers go much more direct to the consumers,” said Gretchen Pearson, the broker-owner of Berkshire Hathaway HomeServices Drysdale Properties. “One of the top loan officers in the nation has set up webinars that he does four times a week and he is building up his own pipeline.”
Finding a way for buyers to finance their agents’ commissions is one of the critical issues that loan officers raise should the traditional practice of sellers paying for both agents’ commissions goes away.
The government-sponsored enterprises (GSEs) including Fannie Mae and Freddie Mac as well as the Federal Housing Administration (FHA) would likely have to weigh in, loan officers said.
“I think that’s the most important thing so that these buyers don’t get impacted negatively by their inability to have sufficient funds for a down payment,” Borodinsky said. “Because otherwise it’s going to sort of end the whole concept of how we define closing costs, because now we’ve got to add that in as almost as another tax or a fee.”
If Fannie Mae and Freddie Mac were to count the buyer’s agent fee as a seller contribution, listing agents would have more power in the homebuying and selling process, Roberts noted.
“I think listing agents are going to win. Agents who know how to get listings are going to win because buyers are gonna go straight to the listing agent and ask the listing agent to write a contract to present to the seller,” Roberts said.
Fannie Mae, Freddie Mac and the U.S. Department of Housing and Urban Development didn’t respond to HousingWire’s questions about whether they would come up with a mechanism to help buyers finance agent commissions.
“There is a potential of buyers having to directly pay buyer brokers and that could impact the lending side, and I know they are aware, but I am not aware of them taking any action,” Johnson said. “And maybe that is intentional because there might not be an immediate need for action.”
HousingWire reached out to the top 10 mortgage originators to comment on the impact commission lawsuit results could have on the mortgage industry. Wells Fargo, Pennymac, U.S. Bank Home Mortgage and Planet Home Lending declined to comment. Others didn’t respond.
Plenty of buyers still want a personal advisor
Although buyer’s agency commission may disappear or greatly slowdown, Murray believes the relationship between real estate agents and LOs will remain integral to the transaction.
“If buyer brokers agency goes away, I am not sure that the habit of referrals will go away or change too much,” Murray said. “Buyers will still rely on an agent, whether it is a listing agent or their own buyer broker to get a recommendation on mortgage companies.”
A significant number of consumers want a trusted advisor, Patrick Lamb, CEO of On Q Financial, said.
“They want somebody who knows the market, they want somebody who is advocating for them, and who is going to coordinate and go, drive around town and look at all these houses and do all the legwork. There’s some value in that,” Lamb explained.
A conclusion to these three lawsuits is not expected to come for several years. Industry experts believe there will be multiple appeals, giving real estate brokerages and lenders time to consider their options.
“I think it’s a tangential benefit. Whatever ruling likely comes out of this, you can’t change the world in 24 hours. It’ll take time for this to evolve through, there will likely be challenges, there could be appeals. You don’t know how all this goes,” Hale said.
What is certain is that many current LOs would have to reconsider how they get referrals and leads if the environment changes, he explained. And not all would fare well.
“[Only] a minority of LOs are very savvy and very smart about how they pursue referrals. If many of the current LOs in our industry don’t change the way they’re searching for referrals and/or leads in this kind of an environment, they have a high likelihood of becoming extinct.”
Today the Consumer Financial Protection Bureau and Lexington Law, the largest credit repair operation in the United States, entered into a Stipulated Final Judgement and Order the Court must approve. I would be surprised if they didn’t.
I’m going to bold what I think are the most important revelations.
The proposed order says, “Plaintiff Bureau of Consumer Financial Protection (“Bureau”) commenced this civil action on May 2, 2019, to obtain injunctive and monetary relief and civil penalties. The suit alleges, among other things, that the Defendants violated the credit repair advance fee provision of the Telemarketing Sales Rule (TSR), 16 C.F.R. § 310.4(a)(2), by billing clients for credit repair services before the timeframes required by the advance fee provision had expired. On March 10, 2023, this Court issued an order agreeing with the Bureau’s position.
Credit repair organizations that market or sell their services over the phone, irrespective of whether they promise a specific result to consumers, must follow the TSR, including the advance fee provision.
That is, credit repair organizations that market or sell services over the phone may not request or receive payment of any fee for credit repair services until (i) the time frame in which they have represented all of the goods or services will be provided to that person has expired; and (ii) they have provided the person with documentation in the form of a consumer report from a consumer reporting agency demonstrating that the promised results have been achieved, such report having been issued more than six months after the results were achieved.
And no business may substantially assist a credit repair organization that it knows or consciously avoids knowing is engaged in an act or practice that violates the TSR, including by doing such things as providing back office support, technical know-how, lead generation, or data that supports their non-complaint credit repair practices or billing.
The Defendants and the Bureau have now agreed to settle the litigation. As part of the settlement, Lexington Law, CreditRepair.com, and Progrexion—the largest credit repair organizations in the United States—have agreed that, among other things, they will not violate the advance fee provision of the TSR, nor will they knowingly assist or support any company that is violating that provision.
Consumers considering using a credit repair company should be aware that it is illegal for a company to charge them for telemarketed credit repair unless it has been six months since the company achieved the promised results. Their consumer report has to show that the promised results were achieved six months earlier than they can be billed. Credit repair organizations accepting clients via inbound or outbound telemarketing must conform their billing practices to the full requirements of the TSR, including the advance fee provision of the TSR.
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You can read the court documents here and here.
Today, the Consumer Financial Protection Bureau (CFPB) entered into a proposed settlement with a ring of corporate entities operating some of the largest credit repair brands in the country, including Lexington Law and CreditRepair.com. The agreement follows a ruling from the court that the companies collected illegal advance fees for credit repair services through telemarketing in violation of federal law. If approved, the settlement would impose a $2.7 billion judgment against the companies. The order will also ban the companies from telemarketing credit repair services for 10 years.
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“Americans across the country looking to improve their credit scores have turned to companies like CreditRepair.com and Lexington Law. These credit repair giants used fake real estate and rent-to-own opportunities to illegally bait people and pad their pockets with billions in fees,” said CFPB Director Rohit Chopra. “This scam is another sign that we must do more to fix the credit reporting and scoring system in our country.”
Lexington Law and CreditRepair.com are the largest credit repair brands in the country. The credit repair services are marketed and offered through a web of related entities in the Salt Lake City area, including PGX Holdings, Progrexion Marketing, and the John C. Heath, Attorney-at-Law PC law firm. During the time period relevant to the lawsuit, the companies operated nationwide and had more than 4 million customers who were subjected to telemarketing. In 2022, the defendants had combined annual revenues of approximately $388 million.
The CFPB previously sued the companies to halt their illegal conduct and seek redress and other relief. In March 2023, the district court ruled that the defendants violated the advance fee provision of the Telemarketing Sales Rule. The Telemarketing Sale Rule provides a range of protections for consumers related to telemarketing and sets payment restrictions for certain goods and services. It requires credit repair companies to wait until six months after they provide the consumer with documentation reflecting that the promised results were achieved, before they request or receive payment from the consumer.
Following the district court’s ruling, the companies filed for Chapter 11 bankruptcy protection. The companies represented that they had shut down about 80 percent of their business, including their call centers, and laid off about 900 employees in response to the court’s ruling.
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Under the Consumer Financial Protection Act (CFPA), the CFPB has the authority to take action against institutions violating consumer financial laws, including engaging in unfair, deceptive, or abusive acts or practices, and against institutions violating the Telemarketing Sales Rule.
If entered by the court, the settlement will, among other things:
Ban the perpetrators from telemarketing for 10 years: The companies will be banned from telemarketing credit repair services or selling credit repair services that others marketed through telemarketing for 10 years. The companies will also be banned from doing business with certain marketing affiliates. These bans will attach to the companies even after the bankruptcy proceedings are complete.
Require notices to consumers: The companies will be required to send a notice of the CFPB settlement to any remaining enrolled customers who were previously signed up through telemarketing. The notice will inform consumers of the CFPB’s lawsuit, the court’s summary judgment holding, the settlement, the consumer’s right to cancel their credit repair services, and the process for canceling the service.
Impose a $2.7 billion judgment for redress: The order would impose a $2.7 billion judgment against the companies for redress. Due to the companies’ financial insolvency, the CFPB will determine whether the CFPB’s victims relief fund can be used to make payments to those harmed by the perpetrators.
Impose more than $64 million in civil penalties: The order would impose a $45.8 million civil money penalty against Progrexion Marketing and a $18.4 million civil money penalty against the Heath law firm.
Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.
Back in early 2010, the Hardest Hit Fund (HHF) was established by the Treasury to help certain hard-hit states deal with heightened unemployment and foreclosure activity.
A total of 18 states and the District of Columbia were allocated roughly $7.6 billion in federal funds “to develop locally-tailored programs” aimed at getting homeowners back on their feet.
In California, the program is known as “Keep Your Home California,” and it’s overseen by CalHFA. The agency was earmarked $2 billion to allocate to at-risk homeowners via a variety of unique programs.
Homeowners Don’t Have to Be Delinquent Anymore
Today, CalHFA announced an exciting new change to their Principal Reduction Program, recognizing a loan-to-value ratio of 140% or higher as a “financial hardship.”
Prior to this ruling, only things like job loss, pay cuts, extraordinary medical bills, and divorce were considered hardships.
Additionally, mortgages had to be delinquent or meet the CalHFA definition of “imminent default” to qualify for assistance. Mortgages with an LTV of 140% or higher now meet this definition.
In other words, borrowers no longer need to be delinquent in order to receive assistance, so homeowners that kept up with payments despite being severely underwater can finally catch a break.
It’s a big deal because CalHFA is also recognizing the fact that LTVs of 140% or higher are indicative of imminent default, and often lead to foreclosure, even if there isn’t any “real” hardship.
Perhaps other loan servicers and state housing agencies will follow suit.
Anyway, those who qualify are eligible to receive up to $100,000 in free mortgage assistance.
How to qualify for the program:
Must be a low-to-moderate income household (below income limits)
Must be 1-4 unit owner-occupied property
Property must be located in the state of California
First mortgage loan amount must not exceed $729,750
Modified mortgage payment must be reduced to 38% of gross household income
Must have documented, eligible hardship
Loan must be delinquent or in imminent default
Assuming all these requirements are met, the money needn’t be paid back as long as you keep your home for at least five years.
If a sale occurs prior to that date, homeowners may be required to pay back the money from proceeds of the sale if there is sufficient home equity.
CalHFA also offers three other mortgage assistance programs:
• Unemployment Mortgage Assistance Program: Provides out-of-work homeowners on unemployment with as much as $3,000 per month in mortgage assistance for up to 12 months.
• Mortgage Reinstatement Assistance Program: Provides a maximum of $25,000 to help delinquent homeowners “catch up” on their past-due mortgage payments.
• Transition Assistance Program: Provides up to $5,000 in relocation assistance to families who have reached an agreement for a deed-in-lieu of foreclosure or a short sale.
For the record, a loan-to-value ratio of 140% or higher is only a hardship for the Principal Reduction Program.
Since Keep Your Home California launched in February 2011, nearly 32,000 homeowners have been given more than $450 million in assistance.
If you want more information about the program, you can call 888-954-KEEP (5337) between 7 a.m. and 7 p.m. weekdays and 9 a.m. to 3 p.m. Saturdays.
For those in other states nationwide, take a look at this website to get state-by-state information about other HHF programs available.
There are some good alternatives to HARP that many borrowers might not realize exist, especially for those with loans not backed by Fannie Mae and Freddie Mac.
For example, in Oregon, non-Fannie and Freddie borrowers can check out the Rebuilding American Homeownership Assistance (RAHA) program, which provides refinancing of underwater mortgages.
State Housing Finance Agencies have until the end of 2017 to allocate monies under the Hardest Hit Fund program. But act fast, because once the money is gone, the programs will be closed to new applicants.