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Net Branch Sued Over YSPs to Hispanics

FTC v. Golden Empire

May 11, 2009

By staff

A net branch firm based in California has been sued by the government over allegations that its originators charged higher yield-spread premiums to Hispanic borrowers. The 45-branch operation says it originates $2 billion annually.

Golden Empire Mortgage Inc. was sued last week in U.S. District Court For the Central District of California by the Federal Trade Commission, according to a copy of the complaint. Also named as a defendant is owner Howard D. Kootstra.

Golden Empire operates as a mortgage banker and has submitted loan data to the Federal Reserve Board pursuant to the Home Mortgage Disclosure Act since at least 2004, the lawsuit says.

The Bakersfield, Calif.-based company, which is the parent to GEM Mortgage, has been originating conforming, government and subprime loans through 45 retail branches, according to the FTC. Other offerings include Alt-A loans, jumbo mortgages and second liens.

Under "branch opportunities" on its Web site, Golden Empire says branch managers operate and manage their own businesses with corporate office support.

"With Golden Empire Mortgage your net branch looks the way you want it to," the Web site says. "We encourage individuality and business strategies that best meet your management style and your business environment."

GEM reports $2 billion in annual originations.

At issue are overages charged at the discretion of loan officers and branch managers -- over and above risk-based pricing add-ons -- that earn them additional income. Each originator's YSP cut is determined individually, and their branch managers also get a piece of each YSP.

During 2006, the FTC claims Golden Empire made exceptions to its overage caps for Hispanic borrowers "substantially and significantly more frequently" than for non-Hispanic whites. Each exception involved overages of more than 3 percent.

"These disparities in the overages charged are substantial, statistically significant and cannot be explained by factors related to underwriting risk or credit characteristics of the applicants," the complaint says.

But the company allegedly failed to monitor and analyze YSPs earned on loans to Hispanics versus non-Hispanic whites since at least January 2006.

The disparity resulted in violations of the Equal Credit Opportunity Act and the FTC Act, the complaint says.

The FTC hopes to obtain a permanent injunction permanently preventing future violations of ECOA, Regulation B and the FTC Act. In addition, the FTC seeks court costs and the "rescission or reformation of contracts, restitution, the refund of monies paid and the disgorgement of ill-gotten monies."

Federal Trade Commission, Plaintiff, v. Golden Empire Mortgage, Inc., a corporation, and Howard D. Kootstra, individually and as a corporate officer, Defendants.
Case No. CV09-03227, FTC File No. 0623061, May 1, 2009 (U.S. District Court For the Central District of California)

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