  John Robert CULPEPPER, Patricia Starnes Culpepper, on behalf of themselves and all others similarly
situated, Plaintiffs-Appellees,

                                                        v.
   IRWIN MORTGAGE CORPORATION, f.k.a. Inland Mortgage Corporation, Defendant-Appellant.

 Beatrice N. Hiers, individually and as a representative of a class of similarly situated persons, Plaintiff-
Appellee,
                                                        v.

          Irwin Mortgage Corporation, f.k.a. Inland Mortgage Corporation, Defendant-Appellant.

                                                  No. 99-13725.

                                        United States Court of Appeals,
                                                Eleventh Circuit.

                                                  June 15, 2001.

Appeal from the United States District Court for the Northern District of Alabama. (No. 96-00917-CV-H-S),
H. Dean Buttram, Jr., Judge.
Before EDMONDSON, COX and GIBSON*, Circuit Judges.

        COX, Circuit Judge:

        This action under § 8 of the Real Estate Settlement Practices Act1 is now on its second visit to our
court. The plaintiffs, who have home mortgage loans from Irwin Mortgage Corporation, claim that certain

payments, called "yield spread premiums," that Irwin made to the mortgage brokers who handled the
plaintiffs' loan applications are illegal kickbacks or referral fees under § 8. The district court initially granted

Irwin summary judgment, and on the action's first trip to this court, we reversed. Culpepper v. Inland

Mortgage Corp. (Culpepper I), 132 F.3d 692, 694 (11th Cir.1998).2 (The court then explained in a published

order denying rehearing (Culpepper II ) that its opinion—which merely reversed summary judgment—should

of course not be read to require summary judgment in the plaintiffs' favor.3) The panel remanded for further

proceedings.

        One of those proceedings was a motion for class certification, which the district court granted. The


    *
     Honorable John R. Gibson, U.S. Circuit Judge for the Eighth Circuit, sitting by designation.
    1
     12 U.S.C. § 2607.
    2
     Inland Mortgage Corporation has become Irwin Mortgage Corporation since the first appeal.
    3
     Culpepper v. Inland Mortgage Corp. (Culpepper II), 144 F.3d 717, 717-18 (11th Cir.1998).
plaintiff class now comprises

        [a]ll persons who, from April 11, 1995, until this class is certified, [June 22, 1999], inclusive,
        obtained an FHA mortgage loan that was funded by Irwin Mortgage Corporation wherein the broker
        was paid a loan origination fee of 1% or more and wherein Irwin paid a "yield spread premium" to
        a mortgage broker.4

Irwin was permitted to appeal this class certification under Fed.R.Civ.P. 23(f). Reviewing the district court's

ruling for abuse of discretion only,5 we affirm.

                                                   Background

        The "yield spread premiums" at issue in this case,6 as the panel explained more fully in Culpepper

I,7 are payments from Irwin to its mortgage brokers that the written agreement between them contemplates,

but does not define.8 Each business day, Irwin distributes a rate sheet to its brokers, listing the terms of the
loans Irwin is offering that day. The loans' interest rates are set with reference to a "par rate." If the broker

originates a loan at a below-par rate, it gets no compensation from Irwin. On the other hand, originating a
loan at an above-par rate garners the broker a yield spread premium, whose amount is determined by a

formula that includes the amount of the loan and the difference between the loan rate and the par rate. The
formula does not take into account the amount of work the broker actually performed in originating the loan

or how much the borrower paid in fees for the broker's services. See Culpepper I, 132 F.3d at 694.

        Section 8(a) of the Real Estate Settlement Practices Act (RESPA) prohibits both the giving and

acceptance of "any fee, kickback, or thing of value pursuant to any agreement or understanding, oral or
otherwise, that business incident to or a part of a real estate settlement service ... shall be referred to any
person." 12 U.S.C. § 2607(a). (Lending is clearly a "business incident to or a part of a real estate settlement

service." See 12 U.S.C. § 2602(3).) Subsection (c) then qualifies subsection (a)'s blanket prohibition by


    4
     (R.1-59 at 2.)
    5
     Heaven v. Trust Co. Bank, 118 F.3d 735, 737 (11th Cir.1997).
    6
    We do not pretend to define, or address in this opinion, all of the payments that lenders and brokers
may refer to as "yield spread premiums."
    7
     See Culpepper I, 132 F.3d at 694.
    8
     The form "Revised Loan Broker Agreement" between Irwin and both the brokers involved in this
case makes only one explicit mention of yield spread premiums, in a section setting the price for
repurchase of a loan by the broker back from Irwin. That price, the agreement provides, includes "[a]ny
yield spread premium ... or other amounts previously paid by Irwin to Broker for the Loan." (1st Supp.
R.-Pls.' Evid. Submiss. Supp. Mot. Class. Cert. Ex. D. § 10.)
explicitly sheltering from liability "the payment of a fee ... by a lender to its duly appointed agent for services

actually performed in the making of a loan." Id. § 2607(c)(1)(C). The Senate report accompanying RESPA

explains that subsection (c) is there to "specifically set[ ] forth the types of legitimate payments that would

not be proscribed by the section." S.Rep. No. 93-866 (1974), reprinted in 1974 U.S.C.C.A.N. 6546, 6552.

         Presented with this § 8 challenge to yield spread premiums, the Culpepper I panel read § 8(a) to

prescribe a three-part test for prohibited payments. A payment is prohibited if "(1) a payment of a thing of

value is (2) made pursuant to an agreement to refer settlement business and (3) a referral actually occurs."

Culpepper I, 132 F.3d at 696. The undisputed facts in this action are that Irwin offered to pay (and did pay)

a yield spread premium to the broker here, under their agreement, which led the broker to choose Irwin.

Those facts satisfy § 8(a), the panel concluded. That § 8(a) conclusion remains unchallenged on this appeal.
         The court went on to reject Irwin's argument that yield spread premiums are nonetheless sheltered

by § 8(c). Irwin's payments to brokers, the court concluded, resist characterization as payment for services.9
Nothing in their agreement, for instance, suggests that the amount paid is in any way dependent on the
services provided; most significantly, nothing in the record suggests that the broker renders less service in

originating a below-par loan than it does for an above-par loan, or that Irwin ever inquires into how much
work the broker actually did. Rather, the payment rests solely on the value of the referral. Yield spread

premiums, the panel concluded, are thus prohibited referral fees—or at least a jury could so find. Id. at 696-

97; Culpepper II, 144 F.3d at 718.

         Following this court's opinion in Culpepper I, Congress issued a conference report demanding that

HUD "clarify" its position concerning the legality of yield spread premiums. HUD responded with a policy

statement, which 24 C.F.R. § 3500.4(a)(1)(ii) imbues with the force of a regulation,10 that yield spread
premiums are not illegal per se, but can nonetheless be illegal. HUD tests their legality in two steps. The first
question—whose interpretation is the crux of this appeal—is "whether goods or facilities were actually

furnished or services were actually performed for the compensation paid." Real Estate Settlement Procedures

Act (RESPA) Statement of Policy 1999-1 Regarding Lender Payments to Mortgage Brokers, 64 Fed.Reg.

    9
    Irwin devotes a surprising amount of its brief to challenging this conclusion about the merits. The
question of whether Irwin's yield spread premiums are, or could be, § 8 kickbacks is not relevant to this
appeal, which is about the propriety of class certification.
    10
      The Secretary of Housing and Urban Development has power under 12 U.S.C. § 2617 to issue
interpretive regulations, and has done so. See 24 C.F.R. pt. 3500. None of those regulations add anything
to the statute that is pertinent to the issues presented in this case.
10080, 10084 (Dep't of Hous. & Urban Dev. March 1, 1999)[hereinafter HUD Statement]. The fact that

"services have been actually performed by the mortgage broker does not by itself," HUD explains, "make the

payment legal." Id. Rather, an answer of "yes" to the first question leads to the second question, which is

"whether the payments are reasonably related to the value of the goods or facilities that were actually

furnished or services that were actually performed." Id. The remainder of the Statement describes in some

detail the application of this rule.       The Statement is ambiguous, however, as to the core of the

class-certification dispute here, permitting the parties to read it in importantly different ways, as we next
explain.

                                           Contentions of the Parties

           The parties agree that deciding whether class certification is appropriate—the ultimate issue in this
appeal—requires us, in the end, to settle on a rule of liability under § 8(a) and (c). The reason is that Irwin
attacks only the district court's conclusion that "the questions of law or fact common to the members of the

class predominate over any questions affecting only individual members," and that the class is thus certifiable
under Fed.R.Civ.P. 23(b)(3). Irwin contends that evidence specific to each plaintiff's loan transaction will

predominate at trial, making class treatment improper. Whether transaction-specific evidence is necessary

or relevant, of course, depends on the rule of liability. See 2 Weinstein's Federal Evidence § 401.04[3][b]

(Joseph M. McLaughlin ed., 2d ed.1997). Hence we arrive at determining the rule of liability.

           The centerpiece of Irwin's argument on this point is that the HUD Statement overrules Culpepper I

's interpretation of § 8(c). According to Irwin, the Statement provides a two-step "reasonableness test": (1)

whether any services were performed by the broker, and (2) whether the yield spread premium and the fees

the borrower pays the broker add up to reasonable compensation for the broker's work. In essence, Irwin says
that any payment it makes to any potential referrer is all right, as long as the payment, whatever its reason,

would have been reasonable compensation for services, had it been compensation for services.11 Culpepper

I, Irwin argues, thus wrongly demands evidence that Irwin pays brokers yield spread premiums in return for

service and not merely to reward brokers for high-interest loan referrals. HUD's rule, Irwin continues,

demands that legality be tested transaction by transaction, since the amount of work done by the broker



    11
     This is roughly how many of the district courts that have denied class certification in yield spread
premium cases have described the rule. See, e.g., Schmitz v. Aegis Mortgage Corp., 48 F.Supp.2d 877,
882 (D.Minn.1999); Levine v. N. Am. Mortgage Co., 188 F.R.D. 320, 327 (D.Minn.1999); Taylor v.
Flagstar Bank, 181 F.R.D. 509, 521 (M.D.Ala.1998).
(investigation, paperwork, counseling, and so forth) varies from loan to loan.

         As a fallback position, Irwin argues that even Culpepper I 's test for legality under § 8(c)—which asks

whether the lender and the broker exchanged money for services, not just whether the broker's compensation

was reasonable—requires us to determine whether the borrower and the broker subjectively intended, in each
loan transaction, for the yield spread premium to be Irwin's payment for the broker's services.12 That
question, Irwin says, can only be answered with testimony about each loan transaction from its parties.

         The plaintiffs counter that Culpepper I and the HUD Statement are consistent. This is so, they say,

because the first question in HUD's two-step analysis includes not just whether the broker really worked, but

also whether Irwin paid the money specifically for those services and not for the loan referral. HUD's first

question would thus be, in substance, no more than a re-articulation of Culpepper I 's reason for rejecting

Irwin's argument that yield spread premiums, even if otherwise prohibited by § 8(a), are protected
compensation for services under § 8(c). Whether we use the first question in the HUD test or adhere to

Culpepper I 's reasoning, the plaintiffs say, the result is the same. And that result obviates Irwin's asserted

need to probe the reasonableness of the total broker compensation in any individual transaction. Moreover,

the plaintiffs add, it would be absurd to judge the nature of the payment on the basis of the broker and
borrower's intent in a particular transaction, and thus Irwin's fallback argument is meritless. The plaintiffs
conclude that there is accordingly no need to look at any individual transaction to determine liability, and that

class certification is therefore appropriate.
         These arguments framing the debate, we turn to determining the rule of liability prescribed by the

HUD Statement.

                                                  Discussion
         We agree with the plaintiffs' view of the rule of liability. Reaching that conclusion requires us to

answer two questions. The first is interpretation of the HUD Statement: What does "for compensation paid"
mean when HUD asks us in the first step of its two-step test to determine "whether goods or facilities were
actually furnished or services were actually performed for the compensation paid"? HUD Statement at 10084.

On one hand, if "for compensation paid" means "in exchange for compensation paid," then the plaintiffs

correctly assert that the inquiry in this step includes not only whether the broker performed services, but also



    12
     This view also has some district court support. See Chandler v. Washtenaw Mortgage Co., No. 94-
A-1418-N, ms. op. at 3 (M.D.Ala. July 29, 1998).
whether the broker performed the services as part of a services-for-money exchange. On the other hand, if

"for compensation paid" means nothing at all, or if the phrase means "in connection with the loan
transaction," as one district court has read it,13 then Irwin is right that all we need to know for the first step

is whether the broker did any work on a particular transaction. (They would also be right that Culpepper I

is possibly no longer good law, and we would have to decide whether it would nonetheless be law of this
case.)

           The second question arises from Irwin's fallback argument: Does the borrower and broker's

subjective intent determine whether Irwin's payment to the broker is part of a services-for-money exchange?

This question turns more on interpretation of Culpepper I because the HUD Statement is silent.

           What does "for compensation paid" mean?
            Three reasons persuade us that the plaintiffs' construction of the HUD Statement, and their

explanation of how it fits with Culpepper I, is superior to Irwin's.

           First, Irwin's preferred construction of HUD's language simply does not fit the language, while the

plaintiffs' proposed reading fits very well. To begin with, it would be anomalous to ignore "for compensation
paid" as sloppy drafting on HUD's part. Rational agency regulations have the force of law, and it is a

"cardinal principle of statutory construction that we must 'give effect, if possible, to every clause and word

of a statute.' " Williams v. Taylor, 529 U.S. 362, 120 S.Ct. 1495, 1519, 146 L.Ed.2d 389 (2000) (quoting

United States v. Menasche, 348 U.S. 528, 538-39, 75 S.Ct. 513, 520, 99 L.Ed. 615 (1953)) (internal quotation

omitted). To give the phrase the meaning that Irwin would assign to it, moreover, ("in connection with the
loan transaction") is impossible with our, and possibly any ordinary, use of the English language. On the

other hand, the plaintiffs' suggestion that "for compensation paid" means "in exchange for compensation paid"

is semantically very plausible. See Webster's Third International Dictionary 886 (unabridged ed.1981)

(defining "for" to mean "in exchange as the equivalent of" or "in requital of").

           Second, Irwin's reading of the Statement is not only inconsistent with the Statement itself; it also

would make the Statement clash with § 8(c)'s language. Section 8(c) authorizes "the payment of a fee ... by
a lender ... for services actually performed." 12 U.S.C. § 2607(c)(1)(C). As we pointed out in discussing the

HUD Statement's own language, the preposition "for" connotes an exchange. The word "fee," moreover,

implies a planned money-services exchange even more strongly than "compensation." Compare Black's Law


    13
         Schmitz v. Aegis Mortgage Corp., 48 F.Supp.2d 877, 882 (D.Minn.1999).
Dictionary 629 (7th ed.1999) ("fee" means "a charge for labor or services") with id. 277 ("compensation"

means both "damages" and "[r]emuneration ... in return for services rendered; esp., salary or wages"). The

statute itself thus implies very strongly that only payments whose reason is compensation for services fall
within § 8(c)'s safe harbor, and we hesitate to read the HUD Statement to stray from the statute by imposing

no such limit on legality.

        Third, accepting Irwin's view would have the HUD Statement create an inconsistency between §

8(a)'s liability test and § 8(c)'s exclusion from liability. Everything about § 8(c) suggests that it is an

interpretive gloss on § 8(a) rather than a list of exemptions bestowed upon otherwise illegal conduct. Section

8(c)'s language starts with "[n]othing in this section shall be construed as prohibiting," not with

"notwithstanding § 8(a)" or any other plain exception language. 12 U.S.C. § 2607(c). The Senate report
explains that § 8(c)'s purpose was to "set[ ] forth the types of legitimate payments that would not be

proscribed" by § 8(a). S.Rep. No. 93-866 (1974), reprinted in 1974 U.S.C.C.A.N. 6546, 6552. And HUD

introduces its regulatory list of payments that are proper under § 8(c) with the phrase "Section 8 of RESPA
permits," not some language of exception. 24 C.F.R. § 3500.14(g)(1). If § 8(c) is only a gloss on § 8(a),
making clear what § 8(a) allows in certain contexts, we should avoid reading § 8(c) to bless conduct that §

8(a) plainly outlaws.
        That is exactly what Irwin's reading of the HUD Statement would do. The crux of § 8(a)'s liability
test, even when the suspected referral fee is dressed up as something else, is whether the payment is to

compensate a referrer for referrals; the answer to that question lies in the terms of the agreement between the

referrer and the recipient of the referral. See, e.g., 24 C.F.R. pt. 3500 app. B exs. 1, 2, 6 (noting explicitly

in the examples that the parties are swapping value for referrals); Lawyers Title Ins. Corp. v. Dearborn Title

Corp., 118 F.3d 1157, 1162 (7th Cir.1997) (focusing on the reason for a rent payment—whether it was to

secure referrals or for other reasons—in determining § 8(a) liability, without asking whether the total rent was

reasonable); Aiea Lani Corp. v. Haw. Escrow & Title, Inc., 64 Haw. 638, 647 P.2d 257, 262 (1982) (asking

only if the reason for a reduced title insurance premium was in exchange for referrals, not whether the

premium was otherwise reasonable). Under § 8(a), a payment whose reason is to compensate for referrals
is illegal, period. If Irwin has read the HUD Statement correctly, however, HUD has now decided that § 8(c)

deems some such referral fees legal—that is, referral fees that are paid by lenders and that would be

reasonable service fees, if that's what they were. The plaintiffs' reading of the HUD Statement, by contrast,
keeps § 8(c) as a gloss on § 8(a): Paying referral fees may be prohibited (as § 8(a) provides), but paying
service fees is not (as § 8(c) provides), unless of course the lender pays so much that we can legitimately

suspect a disguised referral fee. We prefer this reading of the HUD Statement, which preserves the harmony

of § 8(a) and 8(c).
         The structure and language of the HUD Statement and of RESPA § 8 thus support the plaintiffs'

proposed rule of liability far better than Irwin's. Irwin maintains nonetheless that accepting the plaintiffs'

view runs afoul of HUD's remark that yield spread premiums are not "illegal per se." HUD Statement at

10084 (italics in original). We do not think so. Our speculation on the outcome of other cases is of course

dicta, but there is no reason to think that under the HUD Statement and Culpepper I a yield spread premium

could not pass muster if the agreement to pay it bore the hallmarks of a fee-for-service exchange—if, for

instance, Irwin required brokers to present a bill showing the services rendered, and how much the broker had
collected in fees from the borrower, or if Irwin followed the advice of the Senate report to "persons and
companies that provide settlement services" that they "ensure that any payments they make ... are not out of

line with the reasonable value of the services received." S.Rep. No. 93-866 (1974), reprinted in 1974

U.S.C.C.A.N. 6546, 6551. So our holding is consistent not only with this remark by HUD, but also with

Culpepper II 's similar observation about its holding. See 144 F.3d at 718.

         We accordingly hold that the first step in the test for liability under § 8 is not only whether the broker
performed some of the services described in the HUD Statement, but also whether the yield spread premium

is payment for those services rather than for a referral. The core theory of the plaintiffs in this case is that
Irwin's yield spread premiums are referral fees, and that we therefore need not reach the second step, which

is whether the broker's total compensation was reasonable.14 Because the plaintiffs could thus prevail solely
by showing that Irwin's yield spread premiums are referral fees, and not service fees, class treatment under

Fed.R.Civ.P. 23(b)(3) is appropriate unless that threshold question itself demands loan-by-loan evidence.
Which brings us to the defendants' fallback argument.

         How do we tell whether there is a services-for-money exchange?
         That argument, as we explained above, is that the nature of the yield spread premium is a product

of the subjective intent of the broker and borrower. That intent, Irwin continues, must be ascertained


    14
     The plaintiffs do have a fallback position, which is reflected in the class definition and which we
need not discuss here, that FHA regulations applicable to FHA loans make any compensation to the
broker over 1% of the loan value per se unreasonable.
loan-by-loan because each loan of course has a different borrower. The plaintiffs counter that Culpepper I

's analysis suggests that the standardized terms under which Irwin pays yield spread premiums can by

themselves prove that yield spread premiums are fees for referrals.

        We agree with the plaintiffs that Culpepper I does not imply Irwin's proposed rule, which (because

of the element of a third party's subjective intent) would put Irwin in the bizarre position of not knowing

whether its conduct was illegal when it committed it. Irwin's best source for the rule in Culpepper I is a single

remark: "No evidence suggests that [the fee paid by the Culpeppers to their broker, Premiere] was not
intended by both Premiere and the Culpeppers to compensate Premiere fully for the work it did for the

Culpeppers." 132 F.3d at 696. This sentence does not, read in context, necessarily imply that broker and

borrower intent ultimately determines whether Irwin's payment of a yield spread premium is for services or

referrals. Culpepper I 's holding is that the terms of the implicit yield-spread-premium deal between Irwin

and its brokers permit a jury to find that the premiums are referral fees. The panel reviews those terms and
concludes in effect that a jury could reasonably infer that Irwin is really buying referrals. After all, Irwin may

not know what services it has received when it pays the premium, but it does know that it has gotten a
referral. The remark on which Irwin relies is best read in this context as a record observation. The court is
merely implying that on the present record, Irwin looks to be wrong that, because brokers rely on the

premiums for compensation, Irwin is buying services. We prefer not to take this remark out of context and
promote it into an element of liability.

        We therefore adopt the sounder rule, the one that Culpepper I 's reasons for denying summary

judgment plainly imply, that the terms and conditions under which a lender pays the broker a yield spread
premium can determine whether the yield spread premium is compensation for referring loans rather than a

bona fide fee for services. There is no suggestion from the evidence or the argument here that Irwin

negotiates yield spread premiums loan-by-loan, rather than paying them according to terms and conditions

common to all the loans. Nor does Irwin contend that it intends some yield spread premiums to pay for
services and others to pay for referrals. Given the test for liability that we interpret the HUD Statement and

Culpepper I to impose, in these circumstances the district court acted within its discretion in determining that

common questions of law and fact predominate and that class certification is thus appropriate under
Fed.R.Civ.P. 23(b)(3).15

                                                  Conclusion
         For the foregoing reasons, the district court's certification of the described class is affirmed.
         AFFIRMED.

                           EDMONDSON, Circuit Judge, concurs in the judgment.




    15
      Irwin argues briefly that the plaintiff Beatrice Hiers is not an adequate class representative because,
having paid less than 1% of her loan value as a broker fee, she is not a member of the presently defined
class. The Culpeppers' adequacy is unchallenged, and this issue about Hiers does not therefore affect the
outcome of the appeal. Because the district court's certification order does not address the question of
Hiers's adequacy, we leave the question open for the district court to consider in the first instance.
