In the latest fallout from this year's bond market turbulence, World Wide Financial Services, a Michigan mortgage lender, has settled a lawsuit concerning rate locks.
The suit, filed by Gilbert and Frances Spilman, alleged that World Wide Financial, which did almost $1 billion in loans last year, had defrauded them by charging costs not disclosed at the time they entered into a rate-lock agreement.
Many mortgage bankers were hurt late last year and early this year when rates moved up sharply, leaving lenders in the red over rate locks.
Rate locks are commitments to lend up until a future date at a set interest rate. Lenders offer them as a means to attract borrowers who are still shopping for their dwelling.
The suit was settled "amicably" about 10 days after it was filed, according to the plaintiff's lawyer. Both parties "recognize the unfortunate nature of the particular transaction," and an agreement was reached for World Wide Financial to donate an unspecified amount to charity.
The settlement covered only the Spilmans. A number of other consumers got in touch with the Spilmans' lawyer contending that they had had similar problems with World Wide and expressing a desire to become parties to the suit.
Under the terms of the settlement, World Wide has agreed to contact borrowers and attempt to resolve complaints.
World Wide Financial originally contracted with the Spilmans in February to provide a 15-year fixed-rate loan, according to the complaint filed in a Detroit area court.
The Spilmans entered into a rate-lock agreement that stipulated an interest rate of 6.63% with one point and no closing costs, according to the complaint.
By April, the Spilmans had found a house and were interested in taking a $300,000 loan, they said.
However, in the interim interest rates had moved abruptly upward. The average 15-year fixed-rate loan stood at 6.63% on Feb. 4, according to HSH Associates, a company that monitors the mortgage market. By April 15, that average was up to 7.91%, making a rate lock at 6.63% very valuable to the Spilmans but expensive for World Wide Financial.
Rate and Costs Climb
The Spilmans allege that when they contacted World Wide in April, they were informed that they would be given a loan at 6.88% with one point and about $2,400 in closing costs.
The Spilmans accepted the terms, but filed suit in mid-May.
World Wide officials declined to go beyond a joint press release that announced the settlement of the suit, which encourages customers with concerns over their loans to get in touch with the company.