Mortgage firm's clients tell many horror stories

Picture this nightmare scenario: You send in your monthly mortgage payment on time, but the mortgage company says it never received it. The company sends you a letter warning that you're one month behind and you owe late fees.

Over the next couple of months, you send in additional payments on time, but the mortgage company counts you as 60 to 90 days in arrears. Worse yet, it sends you a letter informing you that it has no record of a hazard insurance policy on your home, and it is "force-placing" coverage of its own at a cost far above prevailing market rates. This is done despite the fact that you can produce written proof that a valid insurance policy exists.

Finally, the mortgage company sends you a letter saying it is about to foreclose on your mortgage. The only way you can prevent the sale of your home is to immediately send a check covering all the disputed late payments, the insurance fees, collateral valuation and inspection fees, plus several thousand dollars to cover legal expenses.

Sound incredible? Hundreds of customers of one national mortgage company say it is not. Their complaints and class-action lawsuits have prompted investigations by two federal agencies and several state governments to determine whether the company routinely violated civil and criminal statutes to squeeze money out of clients.

Whatever the ultimate results of the investigations, this much is clear: The consumer anger against Fairbanks Capital Corp. and its majority owner, PMI Group Inc., is on a scale rarely seen in the American home mortgage market.

Utah-based Fairbanks denies the allegations and says the joint investigations by the Federal Trade Commission and the inspector general of the Housing and Urban Development Department will turn up nothing improper.

Bill Garland, the president of Fairbanks, said his firm's status as the highest-volume servicer of "non-prime" home loans in the country makes it a predictable target for complaints. Non-prime loans are those made to homebuyers with anywhere from slightly imperfect credit histories to those with grave financial problems, including bankruptcy. Of the 600,000 home loans that Fairbanks services, Garland said, 30 percent — almost 200,000 homeowners — are "more than two payments behind." Fully 45,000 of Fairbanks's loans are in the process of being foreclosed.

We have litigation in this business, it's part of the business," Garland said.

However, lawyers representing plaintiffs in class-action suits say many of the people who are counted as defaulted or heading for foreclosure by Fairbanks shouldn't be.

In a California complaint consolidating four class actions, lawyers alleged that Fairbanks's servicing practices amount to a default-manufacturing "scheme ... to generate revenues for itself and PMI." The suit, pending in Contra Costa County Superior Court, alleges that Fairbanks reaps profits by intentionally "failing to credit" borrowers' payments, using defaults "to improperly assess and collect fees," illegally force-placing revenue-producing hazard insurance policies, and "collecting illegal attorney fees" in connection with foreclosure proceedings.

Most of the plaintiffs in the suit give similar accounts of what happened: Payments they made on time were improperly administered or not credited. Late fees, insurance charges and foreclosure-related fees cascaded upon them month after month.

Plaintiff Connie Whitson of San Diego said she had to pay $3,543.76, including legal fees, late fees and other charges, to Fairbanks after the firm failed to credit her monthly payments properly. Similar complaints have surfaced across the country, lawyers say, and the California class actions specifically cover Fairbanks customers nationwide.

A federal hotline set up by the inspector general of HUD reportedly has logged more than 250 complaints from Fairbanks customers in recent weeks.

In West Virginia, a state court imposed a moratorium on all home foreclosures by Fairbanks, a case that the company now says it is on the verge of settling. Meanwhile, unhappy ex-customers who run the Conti-Fairbanks Web site say authorities are investigating the company in Florida, Illinois, Utah, Georgia, Texas, Michigan and Pennsylvania, among others.

Fairbanks's Garland said the firm is only aware of the FTC and HUD investigations at the federal level, and possibly a couple of routine state licensing examinations.