FTC Challenges Bogus Mortgage Loan Brokers

The Federal Trade Commission has charged Phillip W. Ranney and a group of Colorado-based mortgage brokers 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. At the FTC’s request, 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 sometimes known as PWR Processing, Inc., 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.

The Commission vote to authorize staff to file the complaint was 5-0. The complaint was filed in the U.S. District Court for the District of Colorado on May 26, 2004.

NOTE: The Commission files a complaint when it has “reason to believe” that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest. The complaint is not a finding or ruling that the defendant has actually violated the law. The case will be decided by the court.

Copies of the Commission’s complaint are available from the FTC’s Web site at http://www.ftc.gov and also from the FTC’s Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580. The FTC works for the consumer to prevent fraudulent, deceptive, and unfair business practices in the marketplace and to provide information to help consumers spot, stop, and avoid them. To file a complaint in English or Spanish (bilingual counselors are available to take complaints), or to get free information on any of 150 consumer topics, call toll-free, 1-877-FTC-HELP (1-877-382-4357), or use the complaint form at http://www.ftc.gov. The FTC enters Internet, telemarketing, identity theft, and other fraud-related complaints into Consumer Sentinel, a secure, online database available to hundreds of civil and criminal law enforcement agencies in the U.S. and abroad.