The Federal Trade Commission yesterday announced a $40 million settlement with Fairbanks Capital Corp., the country's largest servicer of sub-prime mortgages, saying the company's "unscrupulous, deceptive and illegal" practices were aimed at victimizing tens of thousands of the most vulnerable homeowners in America.
FTC Chairman Timothy J. Muris and Department of Housing and Urban Development Secretary Mel R. Martinez said at a joint news conference in Washington that the settlement money would be distributed to consumers who were affected by the illegal practices, many of whom are low-income borrowers.
| || |
_____ Primer _____
Corporate Trials: Executives from companies that were among the brightest stars in the 1990s will be fighting to defend their reputations and to stay out of prison in jury trials scheduled in the next few months.
[an error occurred while processing this directive]
The Salt Lake City-based mortgage company, a loan-servicing unit of PMI Group Inc., was also ordered to pay $15 million in other charges that include additional legal and government fees, as well as costs related to seven pending state investigations. Former Fairbanks founder and chief executive Thomas D. Basmajian was ordered to pay $400,000, also to be distributed to affected homeowners.
In agreeing to the civil settlement, Fairbanks did not admit guilt. The settlements are still subject to court approval. If approved, they will also settle a number of class action suits.
According to HUD, this is the largest civil settlement ever under the law that regulates servicing of mortgage loans and administration of escrow accounts. Other recent large settlements of predatory lending cases have focused on the mortgage lenders, as opposed to loan servicers that process monthly payments.
Muris said Fairbanks had engaged in "devious and bad practices" for the last several years that were "very carefully worked out to really prey upon people."
According to the FTC and HUD, Fairbanks cheated consumers in various ways. Those included imposing improper late fees, often by delaying the posting of payments that had arrived on time; misrepresenting the amounts homeowners owed; failing to make timely payments from borrowers' escrow accounts, which in some cases caused insurance policies to be canceled and forced customers to buy higher-priced policies; pushing homeowners who had made timely payments into foreclosure; failing to protect consumer credit ratings; and failing to respond to customer complaints.
Fairbanks services nearly 500,000 "sub-prime" loans -- loans made to borrowers with blemished credit records. As a servicer, it collects mortgage payments from borrowers and pays out insurance premiums and property tax payments for those borrowers.
Sub-prime borrowers usually pay a higher interest rate on their mortgages than borrowers with better credit records.
Muris called the announcement a "landmark" settlement that will serve as a warning to other unscrupulous mortgage lenders and servicers that illegal practices "will no longer be tolerated" by federal agencies. In the settlement, the FTC also issued guidelines and restrictions on Fairbanks's business practices that consumer groups said should set standards for companies that service mortgage loans.
James H. Ozanne, chief executive of Fairbanks since May, said the company had replaced 16 of 27 top executives since the beginning of the year-long investigation by federal and state authorities.
"We've made a fresh start," Ozanne said in an interview. He attributed many of the problems to the company's rapid growth. He said the company grew from servicing $2 billion in loans three years ago to $50 billion by the beginning of 2003.
Diane Cipollone of the Community Law Center in Baltimore said she didn't think $40 million would cover all the damages consumers have suffered at the hands of Fairbanks. She said her nonprofit organization had been "inundated" with consumer complaints.
Pamela and Anthony Dunn, who own a townhouse in Olney, are just two homeowners who ran afoul of Fairbanks when they fell behind on their mortgage payments two years ago.
"I called them and told them I had had some trouble, but that I could pay," said Pamela Dunn. "They said I could make two payments a month for two months. I did that, but they still sent me a letter saying I was going to lose my house. And then they charged me more than $3,500 to stop the foreclosure and for attorney's fees. Now, they want $1,500 more in interest."
Consumers with complaints against Fairbanks can visit the FTC Web site at www.ftc.govor call the agency's toll-free hotline at 877-382-4357.