The Puget Sound Business Journal is reporting that Seattle Mortgage Co., a unit of Seattle Bank, has been hit with a lawsuit in California that claims illegal activities in its reverse mortgage business.
According to court documents, the plaintiff, Mary Labrador alleges that Seattle Mortgage was illegally paying fees to its mortgage brokers and overcharging borrowers on the cost of loan origination.
When Ms. Labrador took out her reverse mortgage through Home Center, a correspondent fee of $490 was paid by Seattle Mortgage to the mortgage broker and alleges it was a “back-channel fee arrangement” used to induce mortgage brokers to steer mortgages to the company.
Court documents reveal that while Ms. Labrador was told the $490 fee was paid to Home Center for the servicing rights to the loan, but she contends that the fee was in fact an incentive fee designed to motivate brokers to steer mortgagors to Seattle Mortgage.
This fee, according to the plaintiff, created a “financial interest” and therefore should have prohibited Defendant from charging Plaintiff the “origination fee” of $7,255.80 due to federal regulation 24 C.F.R. § 206.31(a)(1). The regulation states in part, that a mortgage broker’s fee may be included in the origination fee charged to the borrower only “if there is no financial interest between the mortgage broker and the mortgagee.”
Nance Becker, the lead attorney representing the plaintiff told Business Journal the lawsuit is intended to be a class action and claims reimbursement costs and damage which would likely total about $56 million,
“The bank cannot pay any portion of the origination fee to the broker when there’s a financial interest between the bank and mortgage broker,” she said. “I believe the intent of the regulation is that we want mortgage brokers to give people financial advice based on what’s in their financial best interest and place them in loan products best suited for their needs,” said Becker, “not to be influenced by the fees they receive from the banks.”
If the ruling is favorable to the plaintiffs, it could mean that “common” lender-broker relationships are in fact, in violation of HUD rules, and subject to legal action. Further, the suit is focused in California. Other states could discover the same practice exists there as well.
“It could affect other institutions,” said Becker. “The regulation applies nationally.”
RMD contacted Seattle Mortgage and was told the company couldn’t comment at this time.Email This Post Print This Post
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