A federal judge has granted Freddie Mac’s motion to dismiss the government-sponsored enterprise (GSE) from a class action suit involving Nationstar Mortgage charging borrowers $25 payoff “junk fees.”
Plaintiffs had proposed including Freddie as a defendant in the April suit, claiming that it essentially ratified illegal “pay-to-pay” fees charged by Nationstar when it purchased the loans from the lender. As the owners of the mortgages (with Nationstar acting as servicer and collecting payments), the plaintiffs asserted that Freddie had the “means and ability to audit and supervise Nationstar’s conduct” to ensure that the payoff fees were allowable, and that through its inaction, Freddie endorsed the fees “by turning a blind eye.”
U.S. District Court Judge Barbara Jacobs Rothstein, however, disagreed. Freddie Mac, which disputed that Nationstar charged an illegal fee in the first place, contended that even if Nationstar had charged an illegal fee, it was protected under the Merrill doctrine, a legal principle established in 1947 that keeps the government from being held liable for the unauthorized actions of its agents.
Citing previous cases, Rothstein noted in her opinion that federal courts have consistently recognized Freddie as a federal agency for the purposes of the Merrill doctrine. The plaintiffs had looked to distinguish their case by arguing that they didn’t choose to enter into a mortgage contract with Freddie, but were entered into one after the GSE purchased their loan from Nationstar. But Rothstein cited precedent, pointed out that the distinction hasn’t mattered in applying Merrill to previous, similar cases involving mortgages bought by Freddie and Fannie Mae.
Rothstein also determined that, while plaintiffs argued that Freddie is vicariously liable via tacitly “ratifying” the fees, nothing the GSE did (or did not do) constituted showing any actual authority to permit or disapprove Nationstar’s actions.
“Plaintiffs allege that Freddie Mac did not take any actions to prevent the fees being charged by Nationstar, but Plaintiffs fail to provide any authority to support a theory that Freddie Mac can be held vicariously liable under a theory of ratification by inaction,” Rothstein wrote. “Even if the fees charged by Nationstar are illegal, the Merrill doctrine precludes Freddie Mac from being held vicariously liable for conduct it did not authorize.”
