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Mortgage broker accused of down-payment scheme

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

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