|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."