FHA Suspends Baltimore Lender for Overcharging Minority Borrowers
December 8, 2009
The Federal Housing Administration (FHA) suspended Equitable Trust Mortgage Corporation (ETM) of Baltimore preventing the company from originating and underwriting new FHA-insured mortgages. FHA is imposed the action because ETM improperly overcharged 37 borrowers for broker and loan origination fees in excess of what the U.S. Department of Housing and Urban Development currently allows. HUD discovered that these unauthorized fees were charged to a substantially greater percentage of minority borrowers (68 percent) than non-minorities.
HUD's Mortgagee Review Board (MRB) also found that, in 21 cases, ETM failed to properly disclose all loan origination fees, as well as lender fees to mortgage brokers (commonly called yield spread premiums), on borrowers' Good Faith Estimates. In addition, the company's loans have a high default rate, well in excess of the national average.
"It is critical that FHA lenders apply our standards and do not overcharge borrowers," said FHA Commissioner David Stevens. "The fact that a disproportionate number of these borrowers were minority families is also troubling. I am fully committed to protecting consumers and the fiscal health of the FHA."
FHA limits the total loan origination charges a borrower is required to pay to one percent of the mortgage amount. In this case, FHA found that ETM charged borrowers both a broker fee and an additional one percent origination fee. By charging both a broker and an origination fee totaling more than one percent of the loan amount, ETM received excessive compensation and improperly charged consumers duplicative and unreasonable fees to originate their loans.
HUD's Office of Inspector General is also investigating ETM's lending practices. The Company was immediately suspended for a minimum of six months due to the seriousness of these violations, as well as the inherent risk to FHA's insurance fund and American taxpayers. ETM may appeal its immediate suspension by submitting a written request for a hearing before an Administrative Law Judge within 30 days.
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