FTC Challenges "No-Fee" Mortgage Brokers

June 1, 2004
The Federal Trade Commission has charged a group of Colorado-based mortgage brokers sometimes called PWR Processing with violating federal laws by deceptively claiming that they will refinance consumers’ mortgages at the lowest rates available at no cost to the consumer.

The FTC alleges that, instead of receiving a low-rate mortgage, many consumers have been stuck with high-interest loans, had liens placed on their property, incurred damage to their credit ratings, and, in some cases, faced the beginning of foreclosure proceedings.

A U.S. district court judge has issued a temporary restraining order barring the defendants’ illegal business practices and freezing their assets.

According to the FTC’s complaint, a group of corporate and individual defendants have run advertisements in newspapers in several states, including California and Colorado, as well as on their Web site, claiming “Free 10, 15, 20, 25, or 30-year Fixed” mortgages at “Today’s Rate” with “NO COSTS – NO KIDDING.” The FTC alleges that consumers who contacted the defendants received additional oral and written claims, including “Nothing else can or will be added to the loan amount...” and “all closing costs to be paid from the broker rebate.”

The FTC’s complaint states that the defendants tell consumers that to get a “no-fee” loan, they will need to go through a process of multiple refinances, which involves applying for two or more loans, one at a competitive rate and one at a higher-than-market rate. They claim that lenders on the higher-than-market rate loans will pay a premium to the mortgage broker and that those payments will be used to pay the fees associated with the low-interest loans.

The defendants allegedly tell consumers that the low-interest loan then will be used to pay off the higher-interest loan, leaving the consumer with a no-fee, low-interest loan.

The FTC charges that, instead of giving consumers “no-fee,” low-interest home mortgages, the defendants have left consumers stranded with high-interest loans, in many cases at rates higher than the loans they sought to refinance. The FTC further alleges that the defendants did not pay appraisal and other fees, leaving appraisers free to file liens on the properties they appraised.

Additionally, many consumers, believing they did not have to make payments on their higher-interest loans, have allegedly found that the loans appear as delinquencies on their credit reports, damaging their credit rating.

Finally, the FTC charges that the defendants falsely claim that they are licensed as mortgage loan brokers in the state of California. The defendants’ alleged business practices violate the FTC Act, Truth in Lending Act, and Regulation Z. The FTC has asked the court to permanently bar the defendants’ illegal business practices and award consumer redress.

The FTC’s complaint names Phillip W. Ranney; Armor Mortgage; Abacus Mortgage; Community Homebanc Mortgage Servics, Inc.; Harbor Pacific Funding, Inc.; High Center, Inc.; Lending Strategies of Colorado, Inc.; Lite Realty Corp.; PWR Processing, Inc., dba First Source America Mortgage Corp. dba NexLoan; PWR Press, Inc.; and Source Funding Company, Colorado corporations; Kace, LLC dba Aristocrat Mortgage, a Colorado limited liability company; and Mortgage Watch, a California corporation, as defendants, and Kathleen A. Ranney as a relief defendant.

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