Peter Sutton owned a home that was subject to two mortgages, but his only source of income was a $1,080 monthly Social Security benefit. In an effort to reduce his mortgage payments, which exceeded $1,400 per month, he sought a refinancing loan through an Apex Mortgage Services mortgage broker. According to Sutton, the broker led him to believe that he could receive, from Countrywide Home Loans, Inc., a refinancing loan with payments of $428 per month. The broker, however, ultimately arranged for Sutton to receive an adjustable-rate loan from Countrywide; the loan required monthly payments that started at more than $1,000 per month and were subject to further increases. Sutton also alleged that the broker reported his monthly income as four times the actual amount and failed to inform Sutton about the existence of a prepayment penalty. Sutton signed forms stating that he agreed to the terms of the loan arranged by the broker. He claimed, however, that he did not understand the terms of the loan until after the closing. As compensation for brokering Sutton’s loan, Countrywide paid Apex $7,270, which included a yield-spread premium of $4,710. (A yield-spread premium is a form of compensation paid to a broker by a lender for providing a borrower with a loan that carries an interest rate above the lender’s par rate.) Sutton sued the broker and lender claiming violations of federal law. [Sutton v. Countrywide Home Loans, Inc., ___ F.3d ___ (11th Cir. 2009)]

(a) Who is ethically responsible for Sutton’s predicament? To what extent does Sutton have a duty to read and understand what he signs? Discuss.

(b) Sutton argued that because the broker provided services that were of no value to Sutton, the broker should not receive the yield-spread premium. Do you agree? Why or why not?

(c) Did Countrywide, the lender, have any ethical obligation to monitor the activities of the broker? Would the result have been different if Countrywide had intervened before the documents were signed? Explain.