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PHOENIX -- A class-action lawsuit has been filed charging that mortgage broker The Lending Company illegally offered a popular 1 percent down payment on FHA loans. The lead plaintiff in the case claims that federal law requires a 3.5 percent down payment on FHA loans.

"FHA is generous in that they allow you to increase the interest rate to a point to pay for all of your closing costs," said Valley real estate expert Dean Wegner. "The Lending Company took that to the next level. They increased the rate so high that it could cover the down payment."

Wegner said the company then took it another step further by paying charities a kickback and and an 'administrative fee' (usually about $400) from the money earned from the higher interest rate, and the charities then "gifted" the borrower the money for the down payment.

"TLC had basically the buyer, through the higher interest rate, fund the down payment through the charity, and the charity paid the buyer," said Wegner.

Wegner said the kickback and administrative fee amounted to hidden closing costs that TLC didn't tell the borrower about. He said that it remains to be seen whether any charities will be accused of wrongdoing.

Wells Fargo Funding and RJ Reynolds are among those also named as defendants in the lawsuit.

Bob McClay, Reporter

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