The Federal Trade Commission and HUD both pursued investigations of the claims, urged in part by complaints from congressional representatives. Hundreds of borrowers also filed class action suits, charging "predatory" servicing practices. One class action in California alleged that customers often were forced to pay thousands of dollars of extra money to Fairbanks as the only way to stop groundless foreclosure proceedings.

After initially dismissing or belittling the claims against it, Fairbanks executives began to cooperate with investigators. Ultimately the top leadership of the company was fired or replaced. Former president Bill Garland said borrower complaints and lawsuits "come with the territory" -- a reference to Fairbanks' position as servicer of nearly 600,000 subprime home loans.

"We have litigation in this business," Garland said. "It is part of the business."

Garland noted that his portfolio contained an unusually high percentage of problem loans -- 30% of his borrowers were two or more monthly payments behind schedule, he said, and 45,000 were in the foreclosure pipeline.

Sources familiar with the Fairbanks case say the federal agencies hope to make an example of the company, and use the settlement as a model for "best practices" guidelines for the subprime servicing industry as a whole. For example, the best practices guidelines might specify precisely how a company should handle borrowers when acquiring a loan servicing portfolio from another mortgage company. Many of the complaints against Fairbanks appear to have arisen at the "hand-off" stage -- after the firm acquired large portfolios of mortgages from other companies, and apparently had difficulties communicating with and integrating the new borrowers into Fairbanks' own servicing procedures.