U.S. Settles With Lender Accused of Overcharging

The Justice Department, delving for the first time into the private mortgage industry’s fair-lending practices, won a $4-million settlement Thursday from an Orange County company accused in a lawsuit of overcharging minority, female and elderly customers.

Long Beach Mortgage Co., based in Orange, agreed to pay $3 million to up to 1,200 customers--mostly in Los Angeles and Alameda counties--and to spend an additional $1 million to educate consumers on how to shop for the most advantageous loans.

The Justice Department, which reviewed mortgages made from 1990 through 1994, asserted that the company’s loan fees for many African Americans, Latinos, women and elderly included an added fee of up to 12% of the loan amount--a fee not charged to younger, white males.

The company denied any wrongdoing, saying it agreed to the settlement to avoid the costs of litigation.

Thursday’s action comes amid conflict between the private mortgage industry, which sought to limit the Justice Department’s investigation into brokers’ fair-lending practices, and activist groups, which are pushing for more regulation.

“This is more than a shot across the bow; it’s a direct hit on the side,” said John Taylor, president of National Community Reinvestment Coalition, a community activist group in Washington. “It’s a wake-up call if there ever was one.”

The lawsuit also marks the first time the Justice Department’s civil rights division took action against a lender based on gender and age bias in loans, said Paul F. Hancock, chief of the agency’s housing and civil enforcement section.

The company charged that the lending model developed by the Justice Department to support the discrimination charges was seriously flawed.

“We’re in business to make loans to people with impaired credit history,” said the company’s lawyer, Ronald Stevens. “We’re not going to engage in conduct that is counterproductive to the very group that is our base.”

The Justice Department has not identified the 1,200 customers, but it contends that the loan files show evidence of price discrimination.

The agency previously has sued 10 banks and savings and loans nationally over fair-lending practices. The latest was a $4-million settlement reached in May with Fleet Mortgage Corp. over two branches that charged African Americans and Latinos higher up-front fees on mortgages.

The actions against regulated, depository institutions have led the banking industry to pressure the Justice Department for action against private mortgage companies, which are a dominant force in home financing. The private industry provided $654 billion in home loans last year.

However, Hancock cautioned that the agency was not “bringing down the hammer” on the industry. “This is just one case,” he said.

Nevertheless, he acknowledged, the Justice Department has been saying for some time that it would look into the private mortgage industry.

“We believe the entire credit industry is subject to fair-lending laws,” he said.

The Justice Department said Long Beach Mortgage lawfully set basic rates and fee structures based on various risk categories.

However, the company allowed independent brokers to add up to 12 points--$12,000 for a $100,000 loan--to customers it brought to Long Beach Mortgage and that it allowed its own employees to charge similar fees. Brokers would receive the additional fees, while employees shared the fees with the company, the agency said.

“The totality of loan originations by Long Beach reveals that African American, Latinos, women and persons over the age of 55 were charged higher prices for their loans than the terms and conditions granted to persons without those characteristics who presented similar levels of risk to the lender,” the agency alleged in its law suit.