NovaStar "Yield Spread" Class Action Lawsuit Settled

The Seattle Times reports:

• "A federal class-action lawsuit alleging that NovaStar Mortgage overcharged 1,600 borrowers was settled out of court Thursday in Tacoma with the firm agreeing to pay $5.1 million. The case centered on yield-spread premiums, a legal but controversial practice in which lenders pay independent mortgage brokers a premium to put borrowers into a loan with a higher interest rate than what they qualified for. [...] U.S. District Judge Robert Bryan ruled that NovaStar's failure to disclose its payment of yield-spread premiums was unfair or deceptive under Washington law."

Reportedly, of the $5.1 million NovaStar has agreed to pay, $3.3 million will be distributed to the homeowners participating in the lawsuit. For their successful efforts, the two Seattle law firms representing them, Bergman & Frockt and Phillips Law Group, get to pocket the remaining $1.8 million.

For more, see NovaStar Mortgage settles class action.

For class action complaint, see Pierce vs. NovaStar Mortgage Corporation.

For prior MarketWatch article on this story, see Subprime crisis shines light on mortgage brokers (Class action suit against NovaStar alleges hidden fees; lender to fight back).

Go here for posts on so-called "no-cost" mortgages, which utilize yield spread premiums to minimize borrowers' out-of-pocket cash outlays when obtaining a mortgage loan.