A Utah mortgage company is being investigated by two federal agencies and sued by thousands of its customers for allegedly charging unwarranted late fees and misapplying payments.
As a result, Salt Lake-based Fairbanks Capital has replaced three executives, including the CEO, in the last three weeks. The company has publicly agreed to cooperate with the U.S. Department of Housing and Urban Development and the Federal Trade Commission in the investigations into the company's practices.
Both agencies declined comment.
Several lawsuits against the company have been filed around the nation, one of the largest in Los Angeles by Lieff Cabraser Heimann & Bernstein. The class-action lawsuit alleges that Fairbanks Capital assessed late fees when payments arrived on time, prematurely referred accounts to collections departments leading to foreclosure and forced some clients to pay for redundant home insurance.
"We are seeing very consistent problems across the group," said attorney Kelly Dermody, mentioning that up to 10,000 clients could be affected. "These are hardworking people, who are trying to put their financial house in order, and they are now facing their worst nightmare, which is that they could lose their home. It's really tragic."
The company has acknowledged that there were "some problems in servicing the borrowers and that a new approach is necessary," said Laurence Barrett, a company spokesman. He said he can't comment on pending litigation, but that new practices have been put in place, including an outreach committee to work with clients.
"It was never the policy of the company to charge inappropriate fees," he said. Now each disputed fee is being reviewed, along with the whole fee structure, he said. "If it's discovered that the original late fee was inappropriate then everything that flowed from that inappropriate fee is rescinded."
Fairbanks "services" loans from people with less-than-perfect credit, by collecting monthly interest, principal, taxes and insurance on mortgage loans.
Some of the clients were easy prey, Dermody said, because many didn't have easy access to attorneys or accountants. "They are vulnerable in terms of not having access to people who will say this is wrong. We hear from people who say they don't understand what is going on. They're very sad stories."
According to the company Web site, Fairbanks Capital services more than 550,000 loans valued at more than $46 billion. It is the nation's largest "special servicer" and third-largest non-prime servicer.
The company is a subsidiary of PMI Mortgage Insurance. About 580 employees work in the company's default, collections, executive and administration departments in Salt Lake City. Fairbanks also has offices in Hatboro, Pa.; Jacksonville, Fla.; and Austin, Texas.
Bill Clark, 48, a homeowner in Livermore, Calif., has racked up nearly $15,000 in late charges and interest after his mortgage was transferred to Fairbanks Capital in February 2002. He said the company incorrectly claimed his mortgage was late the first month, and when he refused to pay the fees, the interest compounded. On top of that, the company allegedly forced him to buy home insurance even after he provided proof of already having insurance.
Now, to avoid foreclosure, the project manager for a construction company is paying $5,000 a month, instead of his $3,500 mortgage. He's joined the class-action lawsuit brought by Lieff Cabraser Heimann & Bernstein.
"Basically I want to hold them responsible for damaging my credit, and I want to get back the money that I'm currently paying," he said. "Right off the bat they were disagreeable to work with. They wouldn't call back. They would cash a check 15 days late and (blame) it on us," said Laurence Barrett, a company spokesman. He said he can't comment on pending litigation, but that new practices have been put in place, including an outreach committee to work with clients.