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WASHINGTON (AP) -- A mortgage company will set up a $40 million fund to compensate tens of thousands of customers and settle government allegations of abusive practices that caused homeowners to pay high insurance rates, improper late fees and other unnecessary costs.
Salt Lake City-based Fairbanks Capital Corp. had "engaged in a laundry list of predatory loan servicing practices," according to a statement Wednesday by the Housing and Urban Development Department and the Federal Trade Commission.
At a news conference Wednesday, HUD called it a record civil settlement over violations of guidelines governing home loans and home-buying transactions. Government officials said the company also violated regulations covering fair credit reporting and debt collection.
Under a separate settlement, former Fairbanks chief executive officer Thomas Basmajian, who stepped down earlier this year, must pay $400,000 into the victim compensation fund that will be overseen by the FTC.
"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," HUD Secretary Mel Martinez said.
The company did not admit guilt in the settlement. Both settlements were filed Wednesday in federal court in Boston and are subject to court approval, which may take months.
If approved, the deal would also settle about 33 private class-action lawsuits around the country involving thousands of customers, the company said. Fairbanks may also have to pay another $15 million for additional legal and government fees, as well as costs related to seven pending state investigations.
In a conference call Wednesday, Fairbanks' current CEO, James Ozanne, said the deal reflects changes already under way at the firm, which has replaced 17 of its top 25 executives since May.
Changes were crafted with the help of consumer groups, Ozanne said. He cited new training programs and quality control checks, and more thorough reviews of delinquent loans before they are put in foreclosure.
"We've made huge changes to the organization, its practices and culture," Ozanne said.
Fairbanks doesn't issue its own loans. It operates as a loan servicer, collecting payments and handling bookkeeping for nearly 500,000 loans, many of which go to people with credit problems.
According to the FTC and HUD, Fairbanks:
--Imposed improper late fees, often by delaying the posting of payments that arrived on time.
--Misrepresented the amounts that consumers owed.
--Failed to protect consumer credit ratings.
--Failed to make timely responses to customer complaints.
--Failed to make timely payments from borrowers' escrow accounts, which in some instances caused the cancellation of insurance policies and forced customers to purchase higher-priced policies.
Sen. Paul Sarbanes of Maryland, senior Democrat on the Senate housing committee, said some of the complaints his office fielded involved customers who were prodded by attorneys to make payments that the company falsely charged were never made.
Fairbanks also has offices in Hatboro, Pa., Jacksonville, Fla., and Austin, Texas.
(Copyright 2003 by The Associated Press. All Rights Reserved.)
