Servicing Problems Result in $40 Million Fairbanks
Settlement
FTC, HUD will drop investigations
October 28
By patrick crowley
One of the nation's leading servicers of subprime
mortgages, under intense regulatory pressure because
of consumer complaints, has agreed to a $40 million
settlement with the federal government.
Fairbanks Capital Corp. Of Salt Lake City, Utah, has
reached the agreement with the U.S. Department of
Housing and Urban Development (HUD) and the Federal
Trade Commission (FTC).
In return, the government agencies will drop their
investigations of Fairbanks.
The settlement must still be approved by the federal
investigations, which have been investigating
Fairbanks for a number of allegations lodged by
consumers.
Fairbanks has been accused of charging excess fees,
misapplying mortgage payments and inappropriately
threatening customers with foreclosures by using
inaccurate or false information.
"We have acknowledged an investigation and we have
worked extensively with (Fairbanks) to come to a
resolution, but we have no comment at this time, "
Brenda Mack, spokeswoman with the FTC in Washington,
said in an interview.
Fairbanks spokesman Brian Keeter referred
MortgageDaily.com to statements and filings made by
The PMI Group Inc., a New York Stock Exchange
publicly-traded investment company and Fairbanks'
majority shareholder.
In the statement, posted on the PMI Group's website,
the company said "this proposed settlement must be
approved by the FTC commissioners as well as HUD and
its implementation is subject to obtaining necessary
court approvals."
PMI Group offers more details in a recent filing with
the Securities and Exchange Commission (SEC).
"If approved... The agreement will resolve both the
FTC and HUD civil investigations, " PMI Group said in
the filing. "The terms of the proposed settlement
require changes in Fairbanks' operations and the
creation of a $40 million fund for the benefit of
consumers allegedly harmed by Fairbanks. PMI expects
to guarantee or fund approximately two-thirds of
Fairbanks' obligations under a $30 million letter of
credit to be obtained by Fairbanks to fund a portion
of the $40 million fund."
In the earnings statement PMI said the settlement will
resulted in a loss of 20 cents a share. For the third
quarter, Fairbanks announced net income of 67 cents a
share, compared to 98 cents in the same quarter a year
ago.
The federal investigations began in March after Sen.
Barbara A. Mikulski, D-Md., asked HUD to "launch an
investigation into the business practices of Fairbanks
Capital Corp."
"There are hundreds of complaints about this company
from homebuyers all over the country, alleging that
Fairbanks is scamming them out of thousands of
dollars, " she wrote in a letter to HUD Inspector
General Kenneth Donohue.
Despite being the focus of several unfavorable news
stories Fairbanks has said little about the
investigations or the charges and complaints made
against the company.
When Mikulski revealed her concerns Fairbanks
president Bill Garland released a statement saying the
company "will certainly to seek to address directly
with Senator Mikulski and her staff any concerns the
Senator may have about Fairbanks' servicing
practices."
Also, in March Standard & Poor's placed Fairbanks'
residential subprime and residential special servicer
rankings on CreditWatch with negative implications,
reflecting "increased regulatory scrutiny over the
company's servicing practices."
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