An Illinois lender will pay $250,000 for consumer redress and create a special loan program in order to settle charges brought by the Federal Trade Commission, HUD, and the State of Illinois.
According to the government authorities, Mercantile Mortgage Company, Inc., a subprime lender with locations in 23 states, offered mortgage loans, many of which were covered by the HomeOwnership and Equity Protection Act (HOEPA). The loans were solicited through its own employees, and third party brokers. This case represents the first time the FTC has charged a mortgage lender for the actions of a third-party broker.
The regulators alleged:
A significant number of the loans Mercantile made were baloon loans that required a large lump-sum payment at the end, usually 80% of the loan amount. Mercantile allegedly either misrepresented or concealed the balloon payment.
Mercantile, in many instances, failed to disclose the balloon payment on the HOEPA disclosures.
In some instances, Mercantile failed to provide the HOEPA disclosures.
Mercantile made other misrepresentations about the key terms and costs of its loans, including:
Interest rate
Monthly payment
Prepayment penalty
Mercantile violated both the Truth in Lending Act and the FTC's Credit Practices Rule.
Mercantile violated RESPA by giving and receiving illegal kickbacks for the referral of loans.
Over a three-year period, one of the third-party brokers referred virtually all of his loan customers to Mercantile in exchange for a broker fee that was typically as high as 10 percent.
The broker will be separately pursued in an Illinois court.
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