Some of the homeowners struggling to stay afloat amid the wave of unscrupulous lending and servicing practices found an early ally in the Federal Trade Commission, the nation's consumer protection agency.

In November 2003, the FTC announced a $40 million settlement with Fairbanks Capital Holding Corporation, its wholly-owned subsidiary Fairbanks Capital Corp. and their founder and former CEO, Thomas D. Basmajian. The corporate defendants agreed to pay $40 million in redress to consumers while Basmajian agreed to pay $400,000.

The FTC alleged that Fairbanks engaged in a variety of “unfair, deceptive, and illegal practices” in the servicing of subprime mortgage loans. Fairbanks was a loan servicing company that specialized in collecting and servicing accounts for subprime lenders.

Among the practices cited by the FTC in legal documents the companies:

➢    Failed to post payments to consumer mortgages in a timely manner. Consumers complained that their payments often were held until after the due date so they could be charged late fees;

➢    Charged consumers for casualty insurance when insurance was already in place;

➢    Assessed and collected improper or unwarranted fees, such as late fees, delinquency fees and attorney fees;

➢    Misrepresented to consumers the amounts they owed.

“The message we are sending is clear – those who seek to take advantage of unsuspecting homeowners will be tracked down and held accountable,” said former  HUD Secretary Mel Martinez, who has since left the Bush Administration.

Eventually, Fairbanks Capital Corp. paid the $40 million and refunds were provided to consumers whose loans were serviced by Fairbanks between Jan. 1, 1999 and Dec. 10, 2003. Fairbanks changed its name to Select Portfolio Servicing, Inc., in July 2004.

More recently, the FTC got a smaller settlement from Gateway Funding Diversified Mortgage Services, L.P., and its general partner, Gateway Funding Inc., based in Horsham Pennsylvania. It has launched lawsuit against deceptive credit card companies, loan rescue firms, and others.

The FTC said Gateway violated the Equal Credit Opportunity Act (ECOA) in pricing both prime and subprime mortgage loans. According to the FTC, the companies gave loan officers nearly complete discretion to charge, in addition to the risk-based price, “overages” that included higher interest rates and higher up-front charges.

     The Commission alleges that Gateway paid its loan officers a percentage of the overages. The practice of allowing loan officers to charge “discretionary overages” resulted in African-Americans and Hispanics paying higher prices because of their race or ethnicity – price disparities that are “substantial, statistically significant, and cannot be explained by factors related to underwriting risk or credit characteristics of the applicants.”

“Unlawful discrimination in the pricing of mortgages is intolerable,” FTC Chairman William E. Kovacic said.

“Discretionary pricing policies must be crafted and monitored carefully so that all applicants are treated fairly.”