NAIHP / NAMB v. Board of Governors of the Federal Reserve System by Marc Savitt

NAIHP / NAMB v. Board of Governors of the Federal Reserve System by Marc Savitt
On March 25, 2011, the Plaintiffs (NAIHP and NAMB), filed what were thought to be their final briefs in the matter of NAIHP / NAMB v. Board of Governors of the Federal Reserve System. Even though, the two lawsuits were consolidated by the District Court, the Judge did permit the Plaintiffs to file separate briefs. Although, NAMB’s lawsuit was narrower in scope, as compared to NAIHP’s broader approach, it was important for both Plaintiffs to be arguing the same message. Therefore, I reached out to NAMB, prior to the 25th, to ensure our legal teams exchanged final briefs, before submission to the court. Both teams showed cooperation by complying with my request. Approximately, three hours after the documents were filed; I received notification from the Court Clerk’s office, that a Motion for a Temporary Restraining Order (TRO) had been filed by NAMB. This motion had not been included with other documents when the attorneys exchanged information earlier in the day.

If NAIHP had been consulted, as was our arrangement, we would have advised NAMB against it. Our thinking was, why give the Defendant (The Board of Governors of the Federal Reserve System), a second “bite at the apple.” They had made certain admissions in their answer to our suit, and might use a hearing to correct the record. Until NAMB’s motion, no hearing was planned. As is customary in this district, a Judge rules after having reviewed the original complaint, the Defendant’s answer to the complaint, and then the Plaintiff’s final response. I made several attempts to persuade NAMB to withdraw their motion, but was unsuccessful. On Monday morning, March 28th, District Court Judge Beryl Howell granted NAMB’s motion.

A few hours later, a second notification was sent from the court, this time including NAIHP in the hearing. NAIHP was prepared to stand on the record, but was now forced to argue its case with less than 24 hours notice. At 9:30 AM the following morning, the Judge called the court to order. Representing the Plaintiffs were Stephen Hill for NAIHP and Francis Riley for NAMB. The Defendant’s table included six attorneys, lead by a Ms. Wheatley. Also in attendance were attorneys from the Community Mortgage Bankers Project, who filed a brief in support of the Plaintiff’s position. The hearing lasted just over 2 ½ hours. As predicted, the Fed had an opportunity to answer questions from the Judge and offer “clarifications.”

The Plaintiffs argued their separate positions well, as did the attorney for the Community Mortgage Bankers Project, but I believe we lost ground, due to the Fed’s opportunity for oral argument and unique interpretation of the law. The next day, March 30th, the Judge ruled against the Plaintiffs. NAIHP held an emergency Board meeting, where it was decided to appeal the Judge’s ruling. In order to be successful on appeal, one must show the Judge committed an error. We believed the Judge made several errors, the worst being her deferring to the Fed on the question of their authority.

Under section 129(l), of Truth in Lending, the very section the Fed cites as giving them the authority to promulgate this rule, the section specifically states, “High Cost Mortgage.” Our position was, the Fed was reaching well beyond high costs mortgages and therefore lacked the authority with this rule. However, the Judge disagreed. The court took the position that the section was unclear and ruled in the Fed’s favor. In our opinion, section 129(l) could not be clearer. The section’s title is High Cost Mortgages.” Several other factors lead us to believe, we might get a different answer in the upper court. An appeal was immediately filed in Circuit Court, along with a request for the rule’s implementation to be “stayed.” Around 10PM on March 31, 2011, the Court did “stay” the implementation pending further order from the court.

The three Judge panel also ordered the Fed to submit a brief with no more than 20 pages, by April 4th. In addition, the Plaintiffs were ordered to submit a combined brief, no more than 10 pages, by April 5th. At 5:15PM on April 5, 2011, the Circuit Court issued their ruling, which upheld the decision of the lower court. The Stay was lifted, allowing for the rule to be implemented. However, the appeal was allowed to move forward. As of this writing, NAMB has announced they plan to continue with the appeal. NAIHP has not yet decided on continuing with their action, because in lifting the Stay, the court gave clear indication the Plaintiffs were unlikely to prevail at trial. In addition, NAIHP discovered another opportunity to resolve this issue, which was unavailable to us, as long as we were in litigation.

For more than 18 months, we warned the Fed of the consequences of this rule. Notice I did not say “unintended.” Within two days of implementation, we have witnessed rates and consumer costs increase across the board, broker shops close up and some lenders exit wholesale. Speaking on behalf of NAIHP, I can guarantee, we will continue to fight this unjustified Rule, until it’s revoked.

Marc is the President of the National Association of Independent Housing Professionals. Previously, he served as the 2008-2009 President of the National Association of Mortgage Brokers.  He also held the positions of NAMB’s President-elect, Vice President, Director, Chairman and Founder of the Consumer Protection Committee and was awarded NAMB’s highest honor, Broker of the Year.