Mortgage Lender W.R. Starkey Mortgage must pay $4.7 million in refunds for signing up consumers for home loans they couldn't afford, under a settlement with the North Carolina Attorney General and North Carolina Commissioner of Banks.
As part of the agreement with the Commissioner of Banks, the chairman and CEO of Starkey has resigned and its president has been removed.
Between January 2007 and September 2008, the Plano, Texas-based company provided loans to North Carolina consumers who bought modular and manufactured homes from Phoenix Housing Group.
In its case, the state alleged that W.R. Starkey collaborated with Phoenix to improperly qualify borrowers for loans on homes and land being sold at inflated prices. To expedite the loan process, Starkey would pay a Phoenix employee to do the work that Starkey was legally required to perform.
The state also alleges that Starkey employees failed to verify financial information that Phoenix provided about borrowers and provided inaccurate information on consumers' credit reports to help them qualify for loans. As a result, consumers received loans without consideration of their ability to repay.
Some Starkey employees went out of their way to disguise their fraudulent activities, according to court documents. In some cases, Starkey employees would cut off fax headers of documents received from Phoenix to cover up that Starkey was not independently verifying financial information from borrowers.
Starkey also added discount points to mortgages but didn't reduce the interest rate correspondingly as required by law, court records show.
Letters will go out this week to consumers eligible for refunds. Under the agreement, 171 homeowners will each receive $26,000. An additional $300,000 will go to North Carolina consumers for the alleged violations and Starkey has also agreed to contribute $361,000 to the State Home Foreclosure Prevention Project, which helps struggling homeowners avoid foreclosure.
The case was filed in November 2009 against Starkey, Phoenix and a third company, K&B Homebuilders. The case against Phoenix and K&B remains active, but the state is asking a judge to permanently ban them from engaging in deceptive activities.
A phone call left for a representative from W.R. Starkey has not been returned. Starkey does business in 13 states.
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