Mortgage servicer, regulators to reveal $40 million settlement

Response to complaints about a booming industry

November 12, 2003|By Trif Alatzas | Trif Alatzas,SUN STAFF

Thousands of consumers who were charged extraordinarily high late fees and other costs related to their monthly mortgage payments will benefit from a $40 million settlement to be announced today between federal regulators and one of the nation's largest mortgage service companies.

Complaints this year about the mortgage collection practices of Fairbanks Capital Corp. sparked a series of lawsuits and investigations by several states, including Maryland. U.S. Sens. Barbara A. Mikulski and Paul S. Sarbanes pushed for a federal investigation and are expected to be present at the announcement of the settlement today.

Consumer advocates say they hope the agreement between Fairbanks and federal regulators is the first step toward better treatment of homeowners by a burgeoning industry of mortgage collectors.

Salt Lake City-based Fairbanks and other companies that manage mortgage accounts for hundreds of thousands of consumers have faced a growing number of complaints about excessive late fees and foreclosure threats.

Maryland officials said they received more than 200 complaints from Fairbanks' customers and conducted their own investigation into the company. Charles Turnbaugh, commissioner of Maryland's financial regulation, said yesterday that he expected the state to reach its own agreement with Fairbanks within a few days. The state's agreement would supplement the federal settlement.

The U.S. Department of Housing and Urban Development and the Federal Trade Commission cooperated on the probe that led to Fairbanks' agreement to pay compensation to mortgage holders who were overcharged.

HUD and FTC officials declined to comment on the settlement, but government and industry sources confirmed it.

Specific details of the agreement will be released today. PMI Group Inc., the majority shareholder in the company, warned its stockholders last month that the proposed settlement would cost the company about $55 million -- $40 million for consumers and $15 million to help settle class-action lawsuits and state investigations.

The company also predicted Fairbanks would be forced to change its operating strategy to become more consumer-friendly. Consumer advocates hope those changes will become standard in the servicing industry, saying Fairbanks isn't alone.

"I believe it is definitely going to serve as an informal guide to national standards, which I think every other servicer will move to emulate," said David Berenbaum, senior vice president of policy for the National Community Reinvestment Coalition in Washington, which has filed complaints against servicers.

"One of the most significant things that has come out of this is an awareness of what is happening in this industry because most homeowners thought they were the only ones," said Diane Cipollone, director of research and policy for the Community Law Center in Baltimore, which has been tracking complaints against Fairbanks.

Reporting by Baltimore's WBAL-TV (Channel 11) helped draw attention to problems with Fairbanks early this year.

No control over loan

Homeowners have little say over who manages their mortgage loan and escrow accounts. Major investment houses often bundle thousands of mortgages and sell the rights to manage them to third-party contractors. It's common for homeowners who secure a loan with a mortgage broker or banker to have their loans managed by another company after settlement.

Many Americans find themselves mailing monthly payments to companies they have never known. A simple mistake about a payment can trigger dozens of telephone calls from collection specialists and years of credit problems.

"It's very hard to protect yourself once you've been thrown out there into the servicing marketplace," said Elizabeth Renuart, staff attorney for the National Consumer Law Center in Boston, which is proposing stronger federal regulation of the industry. "This is just a whole amazing, burgeoning problem."

Consumers complain of more late fees being imposed on their monthly mortgage costs and companies that post payments much later than they receive them. A group of class-action suits has emerged during the past few years, alleging a concerted effort to escalate mortgage balances, damage credit ratings and harass customers to make payments.

Issue `out of control'

Industry experts said a growing number of complaints during the past year have raised awareness of the servicing industry, especially companies managing sub-prime loans -- those to homeowners with riskier credit histories. Fairbanks is the largest servicer of sub-prime loans, with 500,000 accounts.

"During the past six to eight months, the servicing issues have gotten out of control," said Ira Rheingold, executive director for the National Association of Consumer Advocates in Washington.

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