DiTech Offers to Pay $250,000 in Alleged Gouging

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 as many as 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 in 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,” he said. “As far as I’m concerned, [Tuesday’s offer] puts an end to our dispute with the Department of Corporations.”

But regulators said the company would have to pay more to settle.

“In no way does this resolve it from our point of view,” said Bill McDonald, enforcement director of the California Department of Corporations.

If the two sides can’t reach an agreement, the case would be handled by an administrative law judge.

During a routine audit last November, state examiners found between 2,000 and 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, said Bill McDonald, enforcement director for the Department of Corporations.

“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.

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.

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.

Formed three years ago, DiTech has experienced tremendous growth, helped in part by ads on cable television and digital billboards along Southland freeways that touts its rates to motorists.