Fannie’s Going Inside Fairbanks

Letter to Senator says GSE employees to monitor servicing center

June 4, 2003

By ANNE LINEBERRY

Fairbanks Capital Corp. has agreed to allow Fannie Mae employees to monitor its workers during daily business in its mortgage servicing center.

The Utah-based Fairbanks has had trouble staying out of the headlines lately, with last minute finance deals, replaced senior executives, protestors jamming up board meetings, servicer ratings cuts and even a news item on the CBS Evening News detailing customer complaints.

GSE-Fannie detailed their findings and future actions concerning Fairbanks in a letter to Maryland Senator Paul S. Sarbanes Monday. Sarbanes had requested Fannie look into Fairbanks practices in a letter dated March 31. In that letter, Sarbanes voiced concerns about Fairbanks’ servicing practices. The senator included in his letter an investigative reporting package from Baltimore television station WBAL.

Fannie responded in a letter to the Senator from general counsel, confirming that an investigation would be pursued. In its Monday response, Fannie noted that they had investigated Fairbanks’ sites in Salt Lake City, Utah, Austin, Texas and Jacksonville, Florida.

The investigation by Fannie found three main problems: inadequate internal controls; inadequate dispute resolution; and improper assessment of certain fees and charges, the letter said.

Websites abound online for those who feel they were fraudulently treated by Fairbanks. In fact, two of the company’s most vocal critics, founders of the site Borrowerhelp.com, have gone to Utah to serve as unpaid consultants in helping the company develop new consumer policies, according to various media accounts.

Since reaching Salt Lake City and observing changes in the company, the two critics, W. Craig Kenney and Brian Barr, now say that Fairbanks is “a model for needed change throughout the sub-prime industry,” according to a Salt Lake City Tribune article dated May 30.

According to the letter from Fannie, Fairbanks will no longer be eligible to service Fannie-held mortgages until Fannie is satisfied that Fairbanks is handling servicing properly. Excluded from this agreement are certain closed loans.

Fannie will also be allowed to review deliquent loans before they are sent into foreclosure, the letter said. Weekly reports detailing business activity will be issued by Fairbanks to Fannie, the letter said.

As part of the agreement, Fairbanks has agreed to reimburse customers for improper fees and other inappropriate charges, according to the letter, initialed by Franklin D. Raines, chairman and chief executive officer of Fannie.

In response to Fannie’s actions, Sarbanes issued a statement which read in part, “I…want to commend Fannie Mae for moving so quickly to address this situation and to further prevent consumers from becoming victims of these schemes.”

A media spokesperson for Fairbanks reiterated the company’s “comprehensive plan” to review loan processes, adding that the company “has been and is making improvements.”

Fairbanks has been making headlines lately. Here are a few recent developments concerning the company:

• May 27: Fairbanks announces a financing arrangement in a press release, which states in part: “The proposed agreement provides the extension of committed financing for servicing advances and working capital through September 30, 2004. Further, the Company’s primary shareholders will provide an additional $35 million of financing.”

• May 23: The ContraCosta Times website reports Fairbanks’ protesters descended on the board meeting of parent company PMI Group, Inc., a day earlier.

• May 13: Fitch Ratings downgrades the company’s residential subprime primary servicer rating. The press release voiced concerns over management loyalty and financing.

• May 8: PR Newswire releases company statement naming Brad Shuster Chairman
  
• and James Ozanne Chief Executive Officer for Fairbanks, replacing current executives.

• April 30: Standard & Poor’s Ratings Services announces a downgrade on Fairbanks, to “below average” from “strong;” and removed them from CreditWatch negative, calling their outlook “stable.” The S&P report noted documentation that “indicated a pattern of apparent Fair Debt Collection Practices Act (FDCPA) violations.” Also, the report spelled out concerns about the training levels of primary collections employees, inbound call abandonment issues and foreclosure rates that “do not necessarily reflect reasonable efforts to exhaust loss mitigation opportunities.”

• April 29: Fitch Ratings places Fairbanks on “Rating Watch Negative,” citing a pending “determination of the impact of certain of their reporting and remittance practices.”

• March 27: Fairbanks issued a press release stating that the company would “cooperate fully with reviews by the U.S. Department of Housing and Urban Development (HUD) and the Federal Trade Commission (FTC)” concerning servicing practices.”

Anne Lineberry is MortgageDaily.com‘s editor. She previously worked as an online editor/producer for DallasNews.com and on the Metropolitan desk for the print edition of The Dallas Morning News. Email Anne at AnneLineberry@MortgageDaily.com