‘Glitches’ Found in Preferred Credit’s Refunds
A mortgage lender fined $1 million for systematically shortchanging borrowers and falsifying documents is still riddled with “glitches in internal procedures” for making refunds, a state regulator said Tuesday.
Preferred Credit Corp. in Irvine has maintained that it could straighten out its problems itself, but a report by a state-appointed monitor shows otherwise, said Bill McDonald, assistant commissioner of the Department of Corporations.
The company’s delays in turning over loan proceeds caused customers to pay interest on funds they hadn’t yet received.
Preferred has been making refunds to clients to cover the overcharges, but it still hasn’t improved its system for handling loan proceeds, according to the report by Peter A. Davidson.
The system is inexact, plagued with “human errors” in calculations, and “has and will result in some borrowers not receiving the correct interest refund,” Davidson said in his report.
Preferred specializes in high-interest second mortgages for clients with good credit histories but little or no home equity. The borrowers typically use the Preferred funds to consolidate big credit-card debts.
Preferred, operated by 30-year-old Todd Rodriguez, agreed on July 3 to pay $1 million to settle a Department of Corporations lawsuit. The suit accused it of delaying disbursement of loan proceeds to collect more interest and of falsifying documents to cover its tracks.
As part of the settlement, its No. 2 executive, Walter Villaume, resigned as president and agreed to be banned from the mortgage lending industry for life.
The company also accepted regulators’ demands that a monitor be installed to ensure that refunds are properly made. When Davidson was appointed in July, $1.57 million already had been paid to 15,202 borrowers, with another 2,743 refunds to go.
In a report dated last Thursday, Davidson said that about 550 of the 15,202 borrowers received refunds that were too small by an average of $28 and as much as $134.10. In addition, hundreds of other refunds were too large--indicating what Davidson said was Preferred’s inability to calculate the amount due properly.
Davidson said Preferred appeared to be trying to safeguard against underpayments in its refunds.
A spokeswoman, Cecilia A. Wilkinson, said the company believes its system for reimbursing clients is adequate, and it intends to repay all overcharges in full.
But regulators still doubt the company is ready to fix things itself.
“They needed a monitor because the process was not self-enforcing,” McDonald said. “It’s clear there’s enough glitches in their internal procedures that they need to be looked at by someone from outside.”
A review by the Price Waterhouse accounting firm, he said, also showed that Preferred’s systems were inadequate. Of 40 under-payments found by Price Waterhouse, Preferred had identified only two. It also was unable to locate 16 of the 1,068 files that Price Waterhouse requested at random for a review.
