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PENNSYLVANIA MORTG. BANKERS ASSN. v. ZIMMERMAN

June 26, 1987

Pennsylvania Mortgage Bankers Association, and Consolidated Real Estate Service Co., t/a Cresco Mortgage Service, Plaintiffs
v.
Hon. LeRoy S. Zimmerman, Attorney General of Commonwealth of Pennsylvania, and Independent Regulatory Review Committee, Defendants


William W. Caldwell, United States District Judge.


The opinion of the court was delivered by: CALDWELL

William W. Caldwell, United States District Judge

 I. Introduction.

 Defendants, LeRoy S. Zimmerman, Attorney General of the Commonwealth of Pennsylvania, and the Independent Regulatory Review Commission (IRRC), a state agency, have moved to dismiss plaintiffs' complaint. Plaintiffs, Pennsylvania Mortgage Bankers Association and Consolidated Real Estate Service Co., t/a Cresco Mortgage Service (Cresco), allege in this declaratory judgment action that defendants violated their fourteenth amendment rights to equal protection and due process, as well as the contract clause of the federal constitution, in the promulgation of certain regulations dealing with the business conduct of "loan brokers." *fn1" Pendent state claims are also asserted. Plaintiffs have also moved for a preliminary injunction against the enforcement of the regulations. We will grant the motion to dismiss and dismiss the motion for injunctive relief as moot.

 II. Background.

 The complaint sets forth the following allegations which we accept as true for the purposes of defendants' motion. See Labov v. Lalley, 809 F.2d 220 (3d Cir. 1987). Cresco is a mortgage broker engaged in the business of procuring mortgage loans for residential properties from lenders on behalf of borrowers for a fee. Cresco, like other mortgage brokers, does not itself lend money but may provide other services which include originating and processing the loan application. The plaintiff association is a non-profit corporation, whose members include mortgage brokers, mortgage bankers, and others who may also be engaged in processing mortgage loan applications.

 Mortgage rates dropped dramatically in 1986, causing a corresponding increase in the number of mortgage applicants. As a result, those engaged in the mortgage business could not handle the demand. Previously, a mortgage commitment could be made within forty-five days with closing on the residence within thirty days after that. The increased demand extended this time frame, often resulting in mortgage applicants being faced with higher mortgage rates than those quoted to them at the time they applied for the mortgage.

 As a result of consumer complaints concerning the higher rates, the Attorney General promulgated the following regulations, in pertinent part, pursuant to his authority under the Unfair Trade Practices and Consumer Protection Law, 73 P.S. §§ 201-1, 201-3.1 (Purdon Supp. 1987-88):

 
§ 305.2. Definitions.
 
The following words and terms, when used in this chapter, have the following meanings, unless the context clearly indicates otherwise:
 
. . .
 
Loan broker -- A person, copartnership, association or corporation engaged in providing services for the purpose of procuring or attempting to procure a loan on behalf of a borrower where a fee or other valuable consideration is charged for the services. The term does not include a person, copartnership, association or corporation expressly regulated by a regulatory body or officer of this Commonwealth or of the United States, such as State and nationally chartered banks, savings and loan associations and their regulated subsidiaries.
 
§ 305.3. General provisions.
 
(a) With respect to a loan broker, the following shall be considered unfair methods of competition and unfair or deceptive acts or practices:
 
(1) Employing a devise, scheme or artifice to defraud.
 
(2) Making false or misleading statements of fact or omitting material facts in order to make a statement not misleading.
 
(3) Engaging in an act, practice or course of conduct which creates a likelihood of confusion or misunderstanding.
 
(4) Failing to use due diligence and make reasonable efforts to procure a loan on behalf of a borrower.
 
(5) Retaining a fee paid by a borrower to the loan broker where a loan is not procured within the time specified by the loan broker at the rate, term and overall cost agreed to by the loan broker and borrower, regardless of an express written agreement to the contrary. This paragraph does not apply if the failure to procure a loan is due solely to the borrower's negligence or outright refusal to provide information specifically requested by the loan broker.
 
(6) Failing to escrow a fee which is paid by the borrower prior to procuring a loan in an interest bearing account of an institution regulated by the Federal Reserve Board, the Federal Home Loan Bank Board, Comptroller of the Currency or the Pennsylvania Department of Banking.
 
. . .
 
§ 305.4. Waiver of rights.
 
A waiver of this chapter by a borrower prior to or at the time of entering into an agreement with a loan broker is contrary to public policy and is void. An attempt by a loan broker to have a borrower waive his rights under this chapter shall be deemed to be fraudulent conduct under § 201-2(4)(xvii) of the Unfair Trade Practices and Consumer Protection Law (73 P.S. § 201-2(4)(xvii)).

 37 Pa. Code (Annex A) § 305.1 et seq.

 Plaintiffs assert in their brief in support of preliminary injunctive relief that a violation of the regulations may subject a broker to an injunction. A broker may also incur a fine of $ 5,000 if the injunction is violated with an ...


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