Mortgage Broker Charged In Predatory Case

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.