Mortgage Daily Logo
mortgage news from industry experts

Mortgage Broker Charged In Predatory Case

Mortgage Broker Charged In Predatory Case

Case is first where lender charged for broker’s actions

July 30, 2002

By SAM GARCIA

A Chicago, Illinois mortgage broker has been sued by federal and state agencies in a predatory lending case. Many of the loans were purchased by Mercantile Mortgage Company, Inc., who recently settled charges it deceived borrowers about the terms of the loans.

Mark Diamond and his company, OSI Financial Services, Inc., have been charged with deceiving borrowers about their loan terms, according to a recent joint announcement from the Federal Trade Commission, the Department of Housing and Urban Development and the State of Illinois. The case centers around loans — mostly 15-year balloons — to subprime borrowers.

According to the FTC/Illinois complaint, Diamond targets subprime homeowners, routinely soliciting low-income individuals, including elderly persons. Diamond and OSI are accused of misrepresenting loan terms such as the monthly payment amount, the interest rate, and the existence of the balloon payment. The complaint alleges that Diamond presented borrowers with closing documents that were missing key terms such as the cash to the borrower, the annual percentage rate and the monthly and balloon payment amounts. He also allegedly required borrowers to sign loan brokerage agreements where the broker fee was left blank.

Diamond’s fee was often 10 percent of the loan amount.

Westerville, Ohio-based Mercantile, the wholesaler in many of the transactions, is the first wholesaler to be charged by the FTC for the actions of a third-party mortgage broker. Mercantile, which operates in 23 states, is accused of violating the Federal Trade Commission Act, the Illinois Consumer Fraud and Deceptive Business Practices Act, and the Real Estate Settlement Procedures Act.

“We believe that Mercantile’s actions and policies were at all times completely in compliance with all federal and state statutes and regulations, and strongly disagree with the investigation undertaken by the federal government and the State of Illinois,” said Mercantile CEO Bran Silveous — also named in the complaint. “We respectfully disagree, as we always have, with the FTC contention that a lender may be held liable for the actions of a broker, who is licensed by the State and operates independently.”

Mercantile misled borrowers by misrepresenting or concealing the balloon payment, according to the complaint . In addition, in many instances Mercantile failed to disclose the balloon payment on the required Home Ownership and Equity Protection Act disclosures — or failed to provide the HOEPA disclosures at all — the complaint alleges.

HUD accused Mercantile of violating RESPA by giving and receiving illegal kickbacks for the referral of loans.

Mercantile’s proposed settlement would require it to make a $250,000 payment for consumer redress and create a program to offer fully amortized, 30-year refinanced loans on favorable terms to certain borrowers with balloon loans. Mercantile will pay the closing costs for the refinancings, including its own fees as well as those imposed by third parties, such as title insurers.

Earlier this year, California-based First Alliance Mortgage Company and its chief executive officer, Brian Chisick, settled with the FTC for allegedly misleading customers about increases in the interest rate and the amount of monthly payments on adjustable rate mortgage loans. First Alliance, a bankrupt subprime lender, was accused of using a sophisticated sales presentation, known as the “Track,” to gain the trust of customers and hit them with 10%-25% in fees.


back to current headlines

Popular posts

How Long Does It Take to Refinance a Mortgage
How Long Does It Take to Refinance a Mortgage

So, you’re interested in refinancing your mortgage. Maybe you want some extra capital to do that home project you’ve always dreamed of, interest rates are nearing record lows, or you want to start consolidating debt. Regardless of the motivation behind the refinance,...

How Does Refinancing a Mortgage Work
How Does Refinancing a Mortgage Work

A home purchase is considered an investment, and a robust one at that. Savvy owners are constantly looking for new ways to reduce debt, save money, pay less in interest, and ultimately build equity. Refinancing is one way to leverage your investment and do just that....

What Does It Mean to Refinance Your Home
What Does It Mean to Refinance Your Home

You can think of refinancing your mortgage as a debt redo. Essentially, you’ll swap out the existing loan for a new one - ideally with better terms and conditions. Only this time it could help you save money on high mortgage payments, rather than just borrow it....

Setting up the Utilities in My New House
Setting up the Utilities in My New House

All the tedious, time-consuming home closing documents have been signed, sealed, and delivered. Your belongings are packed into what seems like a million boxes and you have a solid plan to haul all your existing furniture to the new place. Just as your boxes and...

When Is My First Mortgage Payment Due?
When Is My First Mortgage Payment Due?

Navigating your way through a brand new mortgage loan can be a difficult task, especially for first time homeowners. After handing over a large sum of money for the down payment and closing costs, it’s important to pay attention to the timing of your first mortgage...

Newsletter

Don’t worry, we don’t spam

calculate your monthly mortgage payment

Related Topics

Helpful Links

Daily mortgage rate trends

Best mortgage lenders

First-time homebuyers programs by state

Loan limits by state

Types of mortgages

APR vs interest rate

Understanding PMI

Related Posts

THE TRUSTED PROVIDER OF ACCURATE RATES AND FINANCIAL INFORMATION