Magazine article American Banker

Calif. Gets Tough on Odd Mortgage Rule

Magazine article American Banker

Calif. Gets Tough on Odd Mortgage Rule

Article excerpt

The recent fight between Wells Fargo & Co. and California over mortgage interest charges highlights a quirk in state law which, combined with aggressive enforcement tactics, is making it a more expensive place for lenders to do business.

At issue is the Department of Corporations' finding -- during what it said were routine examinations -- that Wells had violated a California statute by starting to accrue interest on loans more than a day before the deeds of trust had been filed.

The department's commissioner, Demetrios A. Boutris, said that people cannot move into their homes until their borrowed money clears an escrow account and a deed is filed, and charging interest more than a day before that is unfair to consumers. According to Mr. Boutris, homebuyers end up overpaying lenders by $150 to $650.

The statute has been on the books for years, and California restricted out-of-state lenders to the interest charge period in 1985. No other state has a law defining when a lender can start to charge interest.

Since 1998 the department has taken 37 lenders to task for violating the law, but it did not make the cases public until December, according to Deputy Commissioner Andre Pineda.

Last year the agency decided it would punish repeat offenders with bad publicity, Mr. Pineda said. It embarrassed Washington Mutual Inc. by announcing a lawsuit against Long Beach Mortgage Co., the subprime unit of the Seattle giant, for failing to refund overcharges after two consecutive examinations.

Wells in particular aroused the department's ire. It appeared willing to perform a self-audit and to make refunds to borrowers, but at the last minute it decided the department had no authority to regulate it and filed suit in federal court. In the suit, Wells claimed that federal law preempted the agency's authority, but when the agency requested that it surrender its state mortgage license, Wells refused to comply because it still uses the license to market its loans, agency officials alleged. …

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