Charging vets higher fees triggers suit

Nation's Housing

March 17, 1996|By Kenneth R. Harney

WASHINGTON -- Allegations of abusive home-loan pricing practices victimizing thousands of American veterans have triggered a class-action suit and a nationwide probe by the federal Department of Veterans Affairs (VA).

The focus of the controversy involves what some mortgage borrowers say were excessive fees charged them by lenders who handled their refinancings in the past year.

Rather than charging them one or two "points" on their VA mortgage refinancings, borrowers say, lenders hit them with five, six or more points at settlement. Each point represents 1 percent of the amount borrowed.

The VA published regulations Feb. 28 prohibiting mortgage lenders on so-called "streamlined, rate-reduction" refinancings from charging more than two points on the transaction. Anything above that is considered "excessive."

In an interview March 7, Keith Pedigo, director of the VA's home bTC loan program, also disclosed that his agency is studying the files of dozens of lenders nationwide that have made rate-reduction refinancings in the past two years.

Mr. Pedigo said the agency is seeking to identify those lenders who charged more than two points, and evaluate whether they were justified in doing so.

He noted that under prior rules lenders had no restrictions on the number of points. In cases where extra points were levied to "buy down" the veteran's refinanced, fixed rate to less than the prevailing market rate at the time, charging the higher points might have been entirely appropriate. But when a lender hits a veteran with five or six points and merely cuts the interest to market rate, according to Mr. Pedigo, "we think that is unreasonable."

Approximately 60 firms across the country have been identified thus far during the investigation as frequently charging more than two points for streamlined refinancings. Only by making detailed reviews of individual loan files over the coming weeks, however, will the VA be able to pinpoint which if any firms engaged in abusive pricing.

A class-action suit filed in Florida appears to be the first to take the VA loan-pricing issue to federal court. A husband and wife in Pinellas Park, Fla., Paul and Annette Sepe, filed suit in U.S. District Court in Tampa, charging that they and other customers of two mortgage firms were overcharged in their VA refinancing.

According to the suit, Mortgage Investors Corp. of St. Petersburg, Fla., and Apollo Mortgage and Financial Services of Jacksonville, Fla., charged the Sepes $4,355.70 in "loan discount" fees Sept. 23, representing 6 points on their $72,595 refinancing.

The Sepes charge that the figure "represents an amount in excess of the reasonable compensation for originating a loan," especially given the "nominal services" rendered in the transaction. Charging such fees violates the federal Real Estate Settlement Procedures Act (RESPA), according to the suit.

An attorney for the Sepes, Daniel Edelman of Chicago, estimated that as many as 2,000 VA customers of the two companies may be covered by the class action.

Attorneys for Mortgage Investors Corp. and Apollo say they "vehemently" deny the allegations, and are asking the district court to dismiss the lawsuit.

Pub Date: 3/17/96

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