Monday, April 21, 2008

Wells Fargo Caught Pulling Fairbanks Trick

For those who’ve been ‘round the predatory mortgage servicing bay very long, we recall the infamous “BPO” (Broker’s Price Opinion) became more than just an expense to be passed on to Fairbanks’ victims. In fact, not only was it marked up, many of them came from a Fairbanks subsidiary of another name – Residential Real Estate Review and were then marked up by Fairbanks as if they had actually paid someone for it.

Those fraudulent practices must have garnered the attention of giant squaliforme Wells Fargo, because a class-action suit was filed last week in the Louisiana Federal Court for fraudulently created charges for BPO’s (among a few other typically predatory things like mishandling payments).

Given this squaliformes’ size, if a class is certified for trial, one can only guess how many current and former borrowers could see some form of restitution when the settlement is reached.

For those not familiar with how mortgage servicing squaliformes play the fee-stacking game, consider a typical example of how this works and why it works:

BPO’s are authorized in almost all loan documents and can be charged in a situation where the loan is in default, typically when the loan is 30 days late. A payment received past the “grace period” might wind up in suspense while the notice is sent to the borrower, or the servicer may even send the payment back.

In any event, when and if the loan gets to the 30 day late term, it is typically in default and an order to get a BPO is almost automatically generated and a fee charged to the borrower.

Legally speaking, and this can’t be considered legal advice, the servicer can’t mark-up the fees it pays to a third party and thus profit from them, but in practice, they have two ways to get around these laws. First, they can pay the bill as invoiced by the service provider and then for all the business they generate for that provider, they get a kickback, or, as in the Fairbanks and Wells cases, they own the service provider and don’t disclose the fact that they aren’t paying anything on a cash-out per-service-act basis.

This one could be hard for Wells to defend on a fact basis; a Bankruptcy Court Judge has already ruled that Well’s has been charging bogus, inflated fees “disguised as third party costs” in bankruptcy filings, including the rather damning comment that their “management practices are questionable.”

How far back this could reach is going to be something only the court or the settlement can determine; were the case presented here, every penny they ever charged for a BPO would be distributed to the class as should the $1,000 per RESPA violation plus the attorney’s fees.

Then we’d get a rope.

The Honorable Judge Roy Bean

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