A mortgage banking firm controlled by one of the city`s largest savings and loan associations has thrown hundreds of deals into disarray by delaying closings and rejecting prospective borrowers on technicalities, according to consumers and real estate executives.
The complainants say the actions of First Western Mortgage Corp., Palatine, have jeopardized house sales, purchases and refinancings throughout the Chicago area.
William Sullivan, chief of the consumer protection division for the Illinois attorney general`s office, said the number of complaints against First Western had risen to 82 by Friday afternoon from 15 May 8. Sullivan said it hasn`t been determined how many of those complaints may be valid.
Michael Stallings, president of Pathway Financial, a federal savings and loan association that holds a majority stake in First Western, conceded the delays. But he defended the mortgage banker, saying closing problems stem in large measure from a paperwork backlog caused by the borrowers.
”These are people who played the market and are getting burned,”
Stallings said.
First Western officials did not return repeated telephone calls.
The mortgage banker is one of a number of lenders attracting complaints in the wake of rising interest rates. Would-be borrowers who were promised specific rates of 8 to 9 percent in February and March claim that the lenders are reneging now that rates have gone above 10 percent.
Lomas & Nettleton, for example, one of the nation`s largest mortgage bankers, was sued last week by the Pennsylvania attorney general for alleged deceptive practices in that state.
One would-be First Western borrower, Nancy Norton of Crete, said she applied for an FHA mortgage with an 8.5 percent interest rate in February. At the time of her application, she was told her rate would be locked in for 60 days.
Norton said her loan officer also assured her, orally, that if First Western delayed her closing beyond the 60-day deadline, it would extend its commitment to fund her loan at 8.5 percent.
The lock-in expired in April. Last week, an appraiser came out to look at the home Norton and her fiance, Erwin Hanck of Steger, were buying in Dyer, Ind.
By this time, Norton said, First Western was quoting a mortgage with a 10.5 percent rate. It also had jacked up the closing fees on the loan–to 6 percentage points of the mortgage amount, or $3,600, from 2 points, or $1,200. First Western denies any knowledge of a promise to extend the deadline for the 8.5 percent interest rate, Norton said, adding that her loan officer has twice suggested she withdraw the loan application–and forfeit a $185 application fee–and seek a mortgage elsewhere.
The couple still is waiting for their mortgage.
Pathway`s Stallings said borrowers have themselves to blame, having opted for ”floating” interest rates when they applied for their mortgages. This meant they would receive the prevailing market rate on the day of their closings.
When rates began shooting up in early April, customers rushed in to lock in their rates, and that`s how the paperwork crunch got started, he said.
(However, First Western customers interviewed by The Tribune say they locked in their mortgage rates when they applied for their loans.)
First Western`s closing schedule is ”booked solid” through June 4, and the lender is delivering $4 million in mortgages a day, all that it can handle, Stallings said.
”If people have commitments, their (interest-rate) locks are being extended,” Stallings said. Additionally, he said, ”there have been no canceled closings.”
Sources disputed that statement, saying that on April 24, First Western abruptly canceled about 100 closings at Attorneys Title Guaranty Fund Inc., a title insurance company.
Stallings said First Western hasn`t been hurt by rising interest rates, though many mortgage companies are hard pressed because they had promised to deliver mortgages with interest rates of 8 to 9 percent. Secondary market investors now are demanding mortgages with returns of more than 10 percent.
Unlike a commercial bank or a savings and loan association, which can fund mortgages out of its base of deposits, mortgage bankers raise cash to close deals by selling their loans into the secondary market, where mortgage- backed securities are bought and sold.
To wriggle out of their commitments, some lenders appear to taking every opportunity to reject borrowers on spurious grounds or slowing the processing of loan applications so borrowers` rate commitments expire before closings.
Complaints are flooding the attorney general`s office at a rate of 500 a week, up from 350 a week in early May and only 10 a week before the mortgage crisis broke, Sullivan said.
Several suits representing ”the first wave” of legal actions against mortgage companies will be filed this week, Sullivan said.
He declined to say whether First Western is one of the lenders to be sued but added that any mortgage company with more than 50 complaints ”is getting serious scrutiny from this office.”
Most complaints have been from people who were promised certain interest rates orally, never received written confirmations and now are being told by mortgage companies that those commitments never existed, he said.
Companies have practiced ”bait and switch tactics,” waiting until the day of a closing to tell a borrower that his mortgage rate or closing costs would be higher than promised, Sullivan said.
Lenders have these people over a barrel, he said, ”because they`ve loaded their furniture onto a moving truck and have no place to go.”
And it`s not just small, hole-in-the-wall operators that consumers are complaining about.
In Pennsylvania Atty. Gen. LeRoy S. Zimmerman`s suit against Lomas & Nettleton on Thursday, the lender was accused of deceptive conduct and violations of that state`s consumer protection laws and loan broker regulations.
Lomas & Nettleton allegedly misled borrowers by quoting one rate, taking application fees and then informing customers that their rates would be higher than promised, according to the suit.
James Sabin, in-house counsel for the Dallas-based Lomas & Nettleton, denied any wrongdoing by the lender, saying language in its mortgage documents gave it the right ”to renegotiate the rate and points to be charged for the loans.”
The Illinois attorney general has logged 104 complaints against Lomas & Nettleton, but, again, not all may be justified, Sullivan said.
In the case of First Western, a mortgage broker who asked not to be identified said she was notified late Thursday that First Western had a full platter of scheduled loan closings and would not book any new closings until June 9.
The problem is the rate commitments the broker had passed on to her customers will run out by June 9. First Western has promised–orally–to honor those commitments beyond their expiration dates, she said.
This is little comfort for people obligated under their sales contracts to move before the end of the month, the broker said.
”I don`t know what to tell them,” she said.
Another couple seeking to borrow from First Western, James and Paula Francis Hart of Chicago, had their mortgage application rejected April 23–two days before their 60-day commitment ran out for a mortgage with an interest rate of 8.5 percent.
First Western said it turned down the couple because Mrs. Hart`s 16-month-old office services business was too new to allow her earnings to be counted with her husband`s, the Harts say. They asked for a second hearing but were told nothing could be done until the next Monday, after their commitment expired.
The Harts say their seller refused to extend their sales contract and sold the home to someone else, and they still haven`t received a refund of the $1,323 they paid to First Western to lock in their interest rate.
