It is called the biggest homeowner uprising in the history of the American home mortgage industry: Thousands of disgruntled customers of Fairbanks Capital Corp., a home loan servicer based in Salt Lake City, have triggered investigations of the company by at least two federal agencies, numerous state governments, and multiple class actions and other lawsuits in over a dozen states around the country.

The charges against Fairbanks, according to lawsuits:

Allegedly the company

• Regularly fails to count on-time borrower payments and assesses inappropriate late fees;
• Forces customers into defaults and delinquencies, with signficant negative impacts on their credit standings;
• Ignores existing, documented homeowner hazard insurance policies and “force places” high-cost coverage through its own vendors;
• Threatens foreclosure and assesses exhorbitant legal and other fees against borrowers who want to retain their homes.

A class action suit filed in California on behalf of Fairbanks customers nationwide charges the company with effectively functioning as a home mortgage delinquency mill. Plaintiff Connie Whitson of San Diego said her case is typical. She ended up paying Fairbanks $3,543.76 for late fees, attorneys fees, reinstatment charges, property valuation fees and others after Fairbanks allegedly failed to credit her monthly payments on time. Hundreds of other customers have logged their personal stories regarding Fairbanks on a website created and run by former borrowers and business associates, www.servicingnews.com (formerly known as www.conti-fairbanks.com)

Fairbanks, for its part, declines to discuss ongoing litigation. But a spokeswoman did concede that “there have been problems” in servicing some mortgage accounts, and the company “is working on remedying those problems.”

Meanwhile, both the Federal Trade Commission and the Inspector General of the U.S. Department of Housing and Urban Development are actively investigating Fairbanks for possible criminal and civil statutory violations. Fairbanks president Bill Garland says part of the controversy stems from the company's position as the largest-volume servicer of “non-prime” home loans. Non-prime refers to loans made to home buyers or refinancers with imperfections on their credit files. Fairbanks, whose majority owner is PMI Mortgage Insurance Corp., buys entire pools of loans from other mortgage companies and services them for investors in the bond markets.

Garland points out that an extraordinarily high percentage of the company's borrowers are behind on their payments. Of the 600,000 home loans in its portfolio, according to Garland, 30 percent--or roughly 200,000 customers--have not made timely payments for more than two months. Approximately 45,000 Fairbanks customers are somewhere in the process of foreclosure.

“We have litigation in this business,” says Garland. “It is part of the business.”

Alarmed by charges of unfair and illegal treatment of borrowers, two U.S. senators--Maryland Democrats Barbara Mikulski and Paul Sarbanes--have asked the federal government to investigate whether the company is violating any federal laws. Consumer advocates say Fairbanks is also under scrutiny by state authorities in Florida, Texas, Michigan, Illinois, Pennsylvania, California, and Georgia, among others.

To make matters worse, Fairbanks also recently lost its ability to service new pools of non-prime loans when three ratings agencies, Standard&Poor's, Fitch, and Moody's, downgraded the company because of its regulatory and legal uncertainties. Majority owner PMI also forced aside Fairbanks' founder and long-time chairman, Thomas Basmajian, and elected new executive leadership for portions of the company.

Published: May 19, 2003

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Kenneth R. Harney writes an award-winning, nationally-syndicated column on housing and real estate from Washington, D.C. He is also managing director of the National Real Estate Development Center, a professional education company. He is a past member of the Federal Reserve Board's Consumer Advisory Council, a committee that by federal statute reviews all Fed actions on home mortgage, consmer credit and banking industry regulation. He served as a member of the U.S. Department of Housing and Urban Development's Working Group on Computerized Loan Origination (CLO) systems, and is a member of the Editorial Board of the Fannie Mae Foundation's journal, Housing Policy Debate. He is the author of two books on mortgage finance and real estate.