Peoples Mortg. Co., Inc. v. Federal Nat. Mortg. Ass'n

• Decision Date: 19 May 1994
• Docket Number: Civ. A. No. 92-7275.
• Citation: 856 F. Supp. 910
• Parties: PEOPLES MORTGAGE COMPANY, INC., v. FEDERAL NATIONAL MORTGAGE ASSOCIATION, d/b/a Fannie Mae.
• Court: U.S. District Court — Eastern District of Pennsylvania

856 F. Supp. 910

PEOPLES MORTGAGE COMPANY, INC., v. FEDERAL NATIONAL MORTGAGE ASSOCIATION, d/b/a Fannie Mae.

Civ. A. No. 92-7275.

United States District Court, E.D. Pennsylvania.

May 19, 1994.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

George W. Croner, Kohn, Savett, Klein & Graf, P.C., Philadelphia, PA, for Peoples Mortg. Co., Inc.

Sandra A. Girifalco, Andre L. Dennis, Nicholas Deenis, Jeffrey M. Lindy, Stradley, Ranon, Stevens & Young, Philadelphia, PA, for Federal Nat. Mortg. Ass'n.

Lawrence J. Schempp, Cohen, Shapiro, Polisher, Shiekman & Cohen, Judah I. Labovitz, Philadelphia, PA, for Meridian Mortg. Corp.

MEMORANDUM

GILES, District Judge.

Federal National Mortgage Association ("Fannie Mae" or "FNMA"), moves for summary judgment as to all of Peoples Mortgage Company's ("Peoples") claims. Peoples moves for summary judgment as to Count IV of Fannie Mae's Amended Counterclaim. For the reasons stated below, both motions are granted.

I. JURISDICTION

Peoples brought this action in the Court of Common Pleas of Montgomery County on November 24, 1992. On December 18, 1992, Fannie Mae removed the case to this court pursuant to 28 U.S.C. ? 1441. 28 U.S.C. ? 1441(a) provides in relevant part:

Any civil action brought in a State court of which the district courts of the United States have original jurisdiction, may be removed by the defendant or the defendants, to the district court of the United States for the district and division embracing the place where such action is pending.

Fannie Mae is a federally chartered corporation, 12 U.S.C. ? 1717(a)(2)(B), and the National Housing Act, 12 U.S.C. ? 1723a(a), confers subject matter jurisdiction upon this court.

II. STANDARD FOR SUMMARY JUDGMENT

Summary judgment is appropriate where the record demonstrates that there is no genuine issue of material fact and that the moving party is entitled to judgment as a matter of law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48, 106 S.Ct. 2505, 2509-10, 91 L.Ed.2d 202 (1986). When considering a motion for summary judgment, the court is not permitted to weigh the evidence. Id., 477 U.S. at 255, 106 S.Ct. at 2513. Instead, the court's sole function is to determine if there are any disputed facts, and, if there are, to determine whether the dispute is both genuine and material. Id., 477 U.S. at 248, 106 S.Ct. at 2510. All reasonable inferences from the facts must be drawn in favor of the non-moving party. Tigg Corp. v. Dow Corning Corp., 822 F.2d 358, 361 (3d Cir.1987). Summary judgment is inappropriate if "reasonable minds could differ as to the import of the evidence." Anderson, 477 U.S. at 250, 106 S.Ct. at 2511.

III. FACTUAL BACKGROUND

Fannie Mae is a federal government-sponsored private corporation created by Congress to establish secondary market facilities for home mortgages and, among other things, to provide stability in the secondary market for home mortgages. 12 U.S.C. ?? 1716, 1716b. According to Fannie Mae's Mission Statement, Fannie Mae's "unique corporate mission is to be the nation's housing partner in providing financial products and services that increase the availability and affordability of housing for low-, moderate-, and middle-income Americans." FNMA Ex. A.

Fannie Mae purchases mortgages from approved lenders who may also service the loans for Fannie Mae. Reich Verification, FNMA Ex. B. Under this arrangement, the lender, having granted a loan and taken back a home mortgage as a security, will sell the mortgage to Fannie Mae and either sell the mortgage servicing rights to a third party for a fee or do the servicing itself and receive income therefrom. Complaint ? 9.

"Servicing" for a mortgage loan owned by Fannie Mae typically includes the receipt by the servicer of monthly mortgage payments, the crediting of those payments to the borrower's account, the remitting to Fannie Mae of principal and interest sufficient to produce the "pass-through" rate or "required net yield" contracted for by Fannie Mae, the maintenance of escrow accounts for taxes and insurance, and, if necessary, the commencement of any action required to restore a delinquent account. Complaint ? 10. In return for performing such servicing functions, mortgage lenders contracting with Fannie Mae retain an annual fee. Complaint ? 11.

Lenders doing business with Fannie Mae must meet certain criteria to be approved sellers and servicers of mortgages that Fannie Mae purchases. Reich Verification, FNMA Ex. B. Fannie Mae relies upon the integrity of its approved lenders to originate, underwrite and service mortgages properly. In addition, Fannie Mae conducts periodic reviews of the lender's selling and servicing to determine if the seller/servicer is complying with criteria established by Fannie Mae. Id.

Plaintiff Peoples is a mortgage banking company incorporated under the laws of Pennsylvania, with its principal place of business in Montgomery County Pennsylvania. In July 1987, Peoples entered into a Mortgage Selling and Servicing Contract (the "Contract") with Fannie Mae, see Peoples Ex. 2, under which Peoples was approved to sell and service mortgages for Fannie Mae. Complaint ? 17. Pursuant to the Contract, Peoples was an approved seller of mortgages to Fannie Mae, and an approved servicer of mortgages that Fannie Mae purchased from Peoples from time to time. The Contract and the Guides to Lenders ("Guides") set forth the terms and conditions of sales of mortgages by Peoples to Fannie Mae and further delineated the requirements of servicing those mortgages. Reich Verification, FNMA Ex. B. The group of Fannie Mae owned mortgages serviced by Peoples is referred to as the "Servicing Portfolio."

The Contract could be terminated by Fannie Mae with or without cause. If Fannie Mae terminated Peoples' mortgage servicing with cause, Peoples was not entitled to receive any compensation. If Fannie Mae terminated the servicing without cause, Peoples was entitled to a fee to be computed under the Contract and the Guides. Termination of Peoples' right to sell mortgages to Fannie Mae could occur with or without cause without any payment of compensation to the Peoples. Reich Verification, FNMA Ex. B; Contract, Peoples Ex. 2 at ?? IX.C.1, IX.C.2.¹

On May 17, 1991, Fannie Mae decided to terminate Peoples' mortgage selling and servicing rights under the Contract. A letter of termination was hand delivered to Peoples that day, notifying Peoples that its mortgage selling and servicing rights under the Contract were being terminated for cause. See Letter of Termination, FNMA Ex. F; Lis Dep., Peoples Ex. 11 at 115. Fannie Mae also asked Peoples to return to Fannie Mae all files and records that Peoples held on the Fannie Mae-owned mortgages being serviced by Peoples. Berger Dep., FNMA Ex. D at 119. Peoples disputed Fannie Mae's contention that the termination was for cause, and refused to release the mortgage files and records to Fannie Mae. Berger Dep., FNMA Ex. D at 119, 158.

During the two weeks following the May 17 termination, Peoples, Fannie Mae, and their respective counsel engaged in extensive negotiations, culminating in the execution by both parties of a letter agreement, dated May 30, 1991 (the "Letter Agreement"). See Complaint ?? 36-39; FNMA Ex. E (Letter Agreement); FNMA Ex. H (May 20 draft letter agreement); FNMA Ex. I (May 21 draft letter agreement); FNMA Ex. J (May 24 draft letter agreement).

The Letter Agreement, which states that it "represents the full agreement reached by Fannie Mae and Peoples," provides, inter alia:

Peoples was servicing a portfolio of mortgages owned by Fannie Mae ("Servicing Portfolio"). By written notice dated May 17, 1991, Fannie Mae terminated the Contract with Peoples for cause. However, in consideration for the resolution of all disputed issues, as set forth in this letter, Fannie Mae agreed to withdraw such termination and issue a suspension subject to compliance with the terms set forth below.

FNMA Ex. E.

The Letter Agreement continues, providing, inter alia: (a) "Fannie Mae has all rights to the Servicing Portfolio," except as specifically provided in the Letter Agreement. Id. at ? 1; (b) Effective as of May 17, 1991, the Servicing Portfolio "will be subserviced on Fannie Mae's behalf by Meridian Mortgage." Id. at ? 1; (c) Peoples may retain until May 29, 1991, a portion of the Servicing Portfolio that it was attempting to transfer to two other lenders. Id. at ? 2; (d) Peoples will be permitted to sell mortgages to Fannie Mae under the terms of commitments which had not expired as of May 17, 1991. Id. at ? 3; (e) Peoples will be permitted until December 1, 1991, to "complete a sale of the servicing of the mortgages in the Servicing Portfolio to an acceptable Fannie Mae Seller/Servicer." Id. at ? 4; (f) Until the expiration of the period during which Peoples may sell the servicing of the mortgages in the Servicing Portfolio, Peoples will receive servicing income to the extent that the servicing income exceeds Peoples obligations to Fannie Mae. Id. at ? 5; and, (g) Peoples will honor its commitments to Fannie Mae, including obligations to repurchase certain mortgages originally sold by Peoples to Fannie Mae. Id. at ? 6.

In the months following the execution of the Letter Agreement, Peoples was not able to consummate the sale of the servicing rights, despite being given two extensions beyond the December 1, 1991 deadline set in the Letter Agreement for that sale. Peoples' status as a "suspended" servicer remained in place, and Peoples was never reinstated as a fully approved servicer of Fannie Mae mortgages. In addition, Fannie Mae made what Peoples characterizes as "excessive" demands that Peoples repurchase loans originally sold by Peoples to Fannie Mae. In November, 1992, Peoples brought this lawsuit.

Fannie Mae now moves for summary judgment as to all counts of Peoples' complaint, while...