November 12, 2003
HUD AND FTC ANNOUNCE RECORD RESPA SETTLEMENT WITH FAIRBANKS CAPITAL FOR ALLEGED ABUSES OF BORROWERS
$40 million fund will help compensate victims and prevent future abuse
WASHINGTON - Housing and Urban Development Secretary Mel Martinez and Federal Trade Commission Chairman Timothy Muris today announced settlements with Utah-based Fairbanks Capital Corporation and a former top executive of the Company for alleged violations of several federal laws that protect consumers from unfair and deceptive trade practices as well as illegal loan servicing activity.
Under the terms of the agreement, Fairbanks will establish a $40 million fund to compensate credit-impaired victims, many of them low-income families, allegedly injured by Fairbanks' loan servicing practices. In addition, former Fairbanks' Chief Executive Officer Thomas Basmajian will pay $400,000 into the victim compensation fund.
A joint HUD-FTC investigation found Fairbanks violated the Real Estate Settlement Procedures Act (RESPA), the Federal Trade Commission Act (FTCA), the Fair Credit Reporting Act (FCRA) and the Fair Debt Collection Practice Act (FDCPA). Both agencies claim Fairbanks, under Basmajian's leadership, engaged in a laundry list of predatory loan servicing practices involving many of the Company's approximately 500,000 customers nationwide.
"Fairbanks and its top executive engaged in a litany of practices that violated their obligation to adequately serve hundreds of thousands of borrowers, many of them lower income families who were pushed to the brink of foreclosure," said Martinez. "These settlements will go a long way toward compensating these victims and protecting others from being preyed upon in the future."
The Fairbanks' agreement announced today represents the largest civil money payment involving allegations of RESPA violations. RESPA is a federal statute designed to prohibit kickbacks, referral fees and other unearned charges that artificially drive up the price consumers pay to buy or refinance their homes. RESPA also protects consumers in the servicing of their loans and the administration of their escrow accounts.
HUD determined that Fairbanks and Basmajian violated RESPA in the following ways:
- Imposed late fees during the 60-day period from the effective date of the transfer of the mortgage loan;
- Failed to respond in a timely manner to consumer complaints;
- Failed to make timely written notification of any assignment, sale or transfer of servicing;
- Failed to protect consumers' credit ratings;
- Failed to make timely payments from borrowers' escrow accounts which, in certain situations, caused home insurance policies to lapse forcing new higher priced policies on the borrower; and,
- Failed to provide required annual itemized escrow statements to consumers.
Beyond the record $40 million compensation fund established by Fairbanks, HUD and FTC are requiring the Company to adhere to stringent servicing and reporting standards that will protect current and future sub-prime borrowers. These standards include requiring Fairbanks to promptly post borrowers' loan payments and prohibit the Company from imposing improper late fees and other charges. In addition, Fairbanks is required to comply with all statutory and regulatory provisions of RESPA, FTCA, FCRA and FDCPA. A federal district court in Massachusetts must approve the settlements.
HUD is the nation's housing agency committed to increasing homeownership, particularly among minorities, creating affordable housing opportunities for low-income Americans, supporting the homeless, elderly, people with disabilities and people living with AIDS. The Department also promotes economic and community development as well as enforces the nation's fair housing laws. More information about HUD and its programs is available on the Internet.