DiTech Offers to Pay in Overbilling Dispute
Under pressure from state regulators, high-profile mortgage lender DiTech Funding Corp. on Tuesday offered to pay a total of $250,000 to about 2,000 customers who allegedly were overbilled for interest.
But the offer, which came hours after the state Department of Corporations ordered the Irvine lender to reimburse customers and stop violating state law, falls short of what regulators were seeking.
The department estimated that the company should pay at least $360,000, plus a 10% penalty, to up to 2,400 customers and set up a system to guard against future violations.
By day’s end, the two sides still hadn’t agreed to terms.
The charges come at a critical time for DiTech, which is trying to raise more than $100 million in an initial public stock offering.
The department accused DiTech last November of breaking state law by overcharging customers on first mortgages 29% of the time, and nearly 80% of the time on second mortgages. But DiTech disagreed, saying it should be allowed to chalk up interest when events beyond its control such as pauses in recording loans with local governments delayed the funding of loans. The company said it was simply passing on costs it incurred to the borrower.
“We completely disagree with the Department of Corporations on this matter, and had the option of challenging the order through legal channels, but ultimately decided it didn’t make long-term sense to fight it,” said Dan Baren, DiTech’s vice president and general counsel.
In March, DiTech agreed to repay customers a total of $80,000 for overcharges on second mortgages, sending checks ranging from $3 to $219, Baren said. “We’ve made a good-faith process to comply with their interpretation of the rules, and we will continue to do so,” Baren said. “As far as I’m concerned, (Tuesday’s offer) puts an end to our dispute with the Department of Corporations.”
But regulators said that the company, in order to settle the case, would have to pay more.
“In no way does this resolve it from our point of view,” said Bill McDonald, enforcement director of the Department of Corporations.
If the two sides aren’t able to reach an agreement, the case would be handled by an administrative law judge.
During a routine audit last November, state examiners found 2,000 to 2,400 DiTech customers had been wrongly docked for payment. The company had begun charging interest two days to two weeks before customers received their funds, McDonald said.
“Our understanding is that no one in the industry interprets the day when interest starts the way they do,” said McDonald, adding that the money was held by an escrow company in which DiTech had an ownership interest. “People ought not pay interest on money they don’t have use of.”
Baren denied that customers’ funds went through DiTech’s escrow company.
Lumped together with Tuesday’s offer, DiTech has agreed to pay about $330,000 in reimbursements and penalties, at least $30,000 short of the state’s demands.
DiTech is the second Orange County lender that the department has charged with wrongdoing. Preferred Credit Corp., an Irvine company that specialized in loans to people with good credit but little or no equity, shortchanged nearly 18,000 borrowers and settled its case last July, agreeing to repay $1.4 million to customers and a $1-million penalty.
The action also marks DiTech’s second dispute that could result in its being fined. The Santa Clara County district attorney’s office filed a lawsuit last year challenging the company’s claims that it offered the cheapest rates. The suit, which is pending, seeks more than $100,000 in penalties against the company.
In June, DiTech filed for an initial public offering in order to sell a minority stake in the company that it hoped would raise $110.4 million. The company, in documents filed with the Securities and Exchange Commission, did not disclose how many shares it plans to sell or provide an estimated price for the stock. Although the company is proceeding with the offering, a sale date has not yet been set, Baren said Tuesday.
Formed three years ago, DiTech has experienced tremendous growth, helped in part by ads on cable television and digital billboards along Southland freeways that tout its rates to motorists.
So far, the aggressive tactics have worked for the 400-employee company. Loan values soared from $302 million in 1995 to $1.2 billion last year. Net income surged to $8 million last year from $536,000. Revenue totaled $32.8 million last year, up from $911,000 in 1995.
