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Cal Lenders Win Victory On YSPs

A California Appeals Court has ruled the state's predatory lending law does not require lenders to include yield-spread premiums, sometimes referred to as servicing-release spreads, in the points and fees test.

In ruling in favor of Fremont Investment & Loan, the appellate judges said state legislators were aware of the mechanics of YSPs when they passed the predatory lending law.

"Had it intended that a YSP be included as the 'points and fees payable by the consumer at or before closing,' it would have included appropriate language," the Court said in Wolski v. Fremont. In rendering its decision, the Appellate Court upheld a Lower Court ruling.

Daniel Wolski claimed that the loan made by the subprime wholesaler violated the state predatory lending law and it was a "covered" loan because the points and fees, including the YSP, exceeded 6% of the loan amount.

However, Fremont successfully argued it was not a covered loan and the plaintiff erroneously included the $3,700 YSP in the points and fees test.

Fremont Investment & Loan, Anaheim, Calif., is a $9 billion financial services company that offers federally insured deposits and operates a wholesale lending operation that purchases subprime loans from mortgage brokers in 45 states. Company officials could not be reached for comment.

"This is good news, but it is not definitive news," said Jon Jaffe, an attorney in the San Francisco office of Kirkpatrick & Lockhart.

Mr. Jaffe said the Appellate Court's decision should temper the willingness of plaintiff attorneys from filing similar cases.

However, nothing is certain until there is a Supreme Court decision and the plaintiff attorneys might pursue similar cases in other appellate districts, he cautioned.

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