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News Release: 02-09

GRAY DAVIS, Governor
Date: 12/19/02

DEMETRIOS A. BOUTRIS, Commissioner

Department of Corporations Brings Action Against Long Beach Mortgage Based on Unlawful Loan Fees

Mortgage Lender Has Admitted to Thousands of Overcharges

 

Sacramento, December 19, 2002 — The Davis Administration today announced that the Department of Corporations has filed suit in the Superior Court of Sacramento County seeking $9 million in civil penalties for violations of California lending laws by Long Beach Mortgage Company, a wholly owned subsidiary of Washington Mutual, Inc. specializing in sub-prime loans.

"With faith in the financial services marketplace continuing to fall, major players like Washington Mutual should be doing more than ever to treat their customers fairly," said Commissioner Demetrios A. Boutris. "As the Department demonstrated with our suit against Household Finance, the nickel and diming of financially disadvantaged Californians by multimillion dollar consumer lenders will not be tolerated."

During a regulatory examination in 1999, the Department of Corporations discovered that Long Beach Mortgage was overcharging its borrowers by initiating interest charges on mortgage loans prior to the time allowed by law. The Department directed Long Beach to make its customers whole and stop the interest overcharging. Two years later, the Department found that Long Beach was still overcharging its customers, after claiming it had implemented procedures to correct the problem.

Under California law, mortgage lenders may not begin charging interest on a loan until one day before the loan closes. After conducting a Department of Corporations-ordered review of loans it had originated between December 14, 1999, and January 31, 2002, Long Beach Mortgage admitted that it had charged excess interest on nearly 24 percent, or 3,618, of these loans, for an overcharge to borrowers of more than $625,000.

The amount of time during which interest was overcharged on the loans ranged from one day to 201 days. Borrowers were overcharged amounts ranging from $4.19 to $3,248.24. In June, the Department used its administrative authority to require Long Beach to refund these overcharges to its borrowers.

The Department of Corporations is California's Investment and Financing Authority, reporting to the Business, Transportation and Housing Agency and the Governor. The Department is responsible for the regulation, enforcement and licensing of securities, franchises, off-exchange commodities, investment and financial services, independent escrows, consumer and commercial finance lending and residential mortgage lending. For further information or to obtain a complaint form, see the Department's Web site at www.corp.ca.gov or call 1-866-ASK-CORP (1-866-275-2677).

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