Lender fee padding comes under scrutiny
Consumers take heart: Mortgage fee padders may think it’s safe to charge unsuspecting buyers triple the actual cost of their credit reports or other services, but the government is continuing its aggressive investigations of such markups.
The Department of Housing and Urban Development recently reached a $370,000 settlement with Allied Home Mortgage Capital Corp.
The Houston-based company, which operates more than 700 branches nationwide, allegedly tacked extra fees on mortgage customers’ credit charges and pocketed the difference. No details on the specific amounts of padding were included in the settlement document.
What is noteworthy about the settlement is that HUD’s position on the illegality of markups has been rejected by three federal appellate courts covering 15 states: Maryland, Virginia, North and South Carolina, West Virginia, Illinois, Wisconsin, Indiana, Minnesota, Missouri, Iowa, Arkansas, Nebraska and North and South Dakota. Yet the agency continues to pursue fee padders in every region of the country -- even in these 15 states.
Industry sources say overcharges of 300% and higher by some mortgage firms are not uncommon. They cite the example of one large Midwestern mortgage company that reportedly gave an annual Christmas party award to the employee who produced the highest total volume of $65 credit fees charged to borrowers at closings -- $50 higher than the $15 actual cost to the company. The firm took the markups as revenue for itself.
As part of its settlement, Allied admitted no wrongdoing but agreed to pay $370,000 to the federal government and to cease the practice of “upcharging” on any mortgage services. It also agreed to refund any upcharges to consumers that turn up in future audits of branch office files.
The company did not respond to a telephone request for comment on the case.
Speaking to several hundred mortgage executives earlier this month, federal Housing Commissioner John C. Weicher said that “tacking on additional costs to the consumer when there are no [additional] services involved is a violation of the law.”
Attorneys who specialize in representing mortgage companies were puzzled by Allied’s settlement. “Given the strong precedent in the [appellate] courts,” said Phillip L. Schulman of the Washington law firm of Kirkpatrick & Lockhart, “it comes as a surprise” that the firm didn’t fight the government in court. In the settlement document itself, however, Allied said it sought to “avoid further expenses and proceedings” and was therefore willing to accommodate the government.
The core legal issue boils down to this: While the federal law prohibits charges “other than for services actually performed,” critics argue that the law does not specifically address the practice of markups, where surcharges are not split between service providers as kickbacks. Federal investigators say markups are frequently added by lenders to third-party services such as appraisals, courier fees and credit reports. Title insurance companies have admitted marking up even county courthouse recording fees.
Department of Justice lawyers say the legal fight over these practices may ultimately have to be resolved by the U.S. Supreme Court or in Congress.
The broader questions about markups, however, get to the integrity of the entire American home buying and mortgage settlement process. Can consumers believe that the hundreds or thousands of dollars of fees they are being asked to cough up at settlements are for actual services rendered?
Or are they part real and part undisclosed extra revenue for the mortgage company, the title or escrow agency, or the attorney orchestrating the settlement?
The costs of buying a home can be staggering in and of themselves. Should undisclosed add-ons push your bills even higher?
The answer from the federal government to the real estate finance and settlement industries was blunt: Cut costs for consumers. That way more people will be able to afford to buy a house.
Harney’s e-mail address is kharney@winstarmail.com. Distributed by Washington Post Writers Group.
