Prospect Mortgage, a Sherman Oaks, Calif., nonbank lender, has agreed to pay $10.1 million in borrower restitution and penalties for violating federal and state laws, California's Department of Business Oversight said Thursday.
Prospect inflated settlement service fees charged to more than 70,000 borrowers during a four-year period, the state agency said. Beginning in late 2009, Prospect collected $202.50 in settlement service fees from each borrower, which exceeded the actual cost of the services by an average of $37.50, the agency said.
Prospect also failed to disclose to the borrowers that the fees were charged by an appraisal affiliate named C2C Appraisal Services or that many of the services were performed by Prospect employees.
"Prospect overcharged borrowers, failed to provide them proper disclosures and failed to maintain adequately documented loan files," Jan Lynn Owen, commissioner of the California Department of Business Oversight, said in a press release. "This settlement compensates wronged consumers and helps ensure the violations don't occur again."
California was the lead negotiator of the settlement agreement reached with the Multi-State Mortgage Committee on behalf of 50 state regulators. Of the restitution, roughly $2.8 million will go to roughly 70,350 borrowers. California will receive $3.1 million in administrative penalties of the total $7.4 million in penalties to the states.
Prospect said in a press release that the settlement related "to alleged activities that ceased years ago and occurred prior to the present management."
Prospect is run by Mike Williams, the former CEO of Fannie Mae, and is backed by the Chicago-based private equity firm Sterling Partners.
Prospect said it has not admitted to any alleged violations of laws, regulators or rules governing the conduct and operations of its mortgage lending business.
"This agreement resolves all legacy allegations contained in the 2013 examination report and we appreciate the [Multi-State Mortgage Committee's] assistance in putting this matter behind us," Joseph Grassi, Prospect's general counsel, said in a press release.
Prospect also was cited for missing or deficient disclosures, premature credit card charges for appraisal services, inadequate employee screening procedures, and record-retention deficiencies, the state agency said. The settlement requires that Prospect revise its policies and procedures, and train management, mortgage loan originators and support staff.
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Corrected November 19, 2015 at 4:00PM: A previous version of this story incorrectly stated that $37.50 was the actual cost of services provided to each Prospect borrower. The figure is the amount by which the charges exceeded the cost.