With profits from loan originations thin or nonexistent, the money in the mortgage business lies mostly in servicing, the current industry wisdom goes. And lately, lenders have been trying to wring more profits from their servicing portfolios.
But a series of lawsuits filed in the past several weeks could take away some of those profits if the suits achieve class-action status.
The O'Brien Law Firm of Nashau, N.H., in conjunction with Roddy & Grant, Boston, has filed suits in several states against more than a dozen major lenders - including Countrywide Home Loans, Wendover Funding Inc., Mellon Mortgage Co., and Advanta Mortgage Corp.
At issue are fees that mortgage companies charge borrowers when they refinance. These fees are charged by the original lender to borrowers who request their loan documents.
Countrywide, for example, charged one borrower a $50 statement fee and a $15 fax fee, the lawyers say. And Wendover Funding charges $25 to fax a current statement to a consumer's new borrower, and an $85 "attorney fee for satisfaction preparation."
These fees are exorbitant and illegal, according to the consumer lawyers. Neither lender would comment on the suits.
Servicing and payoff functions are "the new ripe area for junk fees, because lenders have already picked the origination carcass clean," said one industry observer.
Edward O'Brien of the O'Brien Law Firm said a servicer with one million loans and a 10% runoff rate can add $5 million a year to profits at $50 per refinancing. Only five servicers, including Countrywide, handle as many as one million loans.
Lenders counter that the fees are necessary to cover expenses. Litigation, they say, is in fact only adding to the price that consumers pay for mortgage loans.
"These class-action lawyers are like rats following crumbs," said Larry Platt, a lawyer with Kirkpatrick & Lockhart, Washington, who is representing several of the defendants. "They're looking at every income source of the lender and asking, 'What gives you the right to collect this money?'"
There is nothing inherently wrong with asking lenders to justify their sources of income, Mr. Platt added, "but this has gotten ridiculous."
The Mortgage Bankers Association of America agrees. "Lenders should be able to charge for the cost of performing services," said Bob O'Toole, senior staff vice president. "The real story here is the class-action lawyers. Someone has been overcharged $15 to $20, and the lawyers are going to put millions of dollars in their pockets."