Let’s discover what “Lending with Expertise” means to Paramount Equity
Jillayne Schlicke on 05 15, 2009
Paramount Equity has settled their case with the Washington State Department of Financial Institutions. Read the Consent Order here. The Statement of Charges outlined many, many violations of state and federal law:
- Using the term “mortgage bank” in their radio ads. Paramount Equity is not a bank and they are not permitted to use the words bank, mortgage bank, or in-house bank in connection with their business. (This should serve as a warning to other consumer loan companies who also like to call themselves mortgage banks.)
- Misrepresenting the availability of advertised interest rates and the APR, misrepresenting that interest rates were fixed when they were adjustable.
- Paramount Equity, in the smooth-as-caramel Hayes Barnard voice, advertised “We’ll even pay for your home to be appraised” when the cost of the appraisal was being covered by charging borrowers processing, administrative, and underwriting fees totaling more than $1700.
- Paramount Equity, in the getting-on-my-nerves Hayes Barnard voice, advertised “We’ll beat any written competitor’s rates and fees or pay you $500” without fairly explaining the nature, limitations, and conditions of this guarantee in the radio ad.
There is so much more in the final consent order including mis-using Google ad words and making inaccurate and misleading historical rate claims, and this is only the advertising portion of the Statement of Charges. Let’s move on to Deceptive Fees. Again, this is from the Statement of Charges:
- Paramount Equity disclosed its mortgage broker fee on lines 801 and 802.
Jillayne here. An average consumer would not know how mortgage brokers are suppose to disclose their fee (Line 808.) Consumers are expected to use the government forms to shop for a mortgage, but when the people who complete the government forms either don’t know how to use the form, are trained improperly, or coached to mis-use the form, then how can the government expect consumers to make informed decisions about their mortgage costs? In any event, Paramount Equity sometimes closes loans on their own credit line, and sometimes they might decide to broker a loan. In either case, their fee is disclosed on different lines. This means a consumer loan company must have systems in place to make sure their loan originators are completing the forms correctly, depending on if they were acting as a consumer loan company or as a broker.
- Hiding a significant portion of the closing costs paid to Paramount Equity by instructing their title agent, Ticor Title, to place the fees on a different page and only transferring the subtotal to the HUD-I. This means homeowners would be less likely to challenge the high fees.
- Collecting unearned fees: Disclosing a loan origination fee on line 801 of the Good Faith Estimate when the loan was going to be brokered. Paramount Equity kept the unearned loan origination fee as part of its mortgage broker fee, a violation of state and federal law.
- Unearned discount points: When Paramount Equity decided to broker the loan instead of closing it on their own credit line (their mortgage banking operation!) Paramount Equity kept the discount points as their fee and did not lower the consumer’s interest rate!
- Unearned underwriting fees: When a mortgage company brokers a loan, the LENDER is the underwriter. Paramount Equity collected an underwriting fee for itself when no underwriting services were performed.
There are 10 separate sections describing disclosure violations. The State reviewed 43 files. Some of the violations occurred in 41 of the 43 files reviewed. In 2007, there were 16 unlicensed loan originators who originated at least 52 residential loans in Washington State.
In signing the Consent Order, Paramount Equity admits no wrongdoing. But the world knows they did wrong by consumers, their regulator, and their industry.*See Update.
However, there’s another way to look at this. We can look at the Paramount Equity case from the viewpoint of the corporation. The corporate mind says, “My competitors and I all agree to abide by these rules (Consumer Loan Act, Mortgage Broker Practices Act, RESPA, etc.) If I know that the majority of us will comply, then I can break the rules and while I’m breaking them, I can make hundreds of thousands of dollars. There is a chance that I will get caught. If that happens, what can I settle for? I mean, heh heh, there’s NO WAY we’ll ever go to court because the evidence against us will be overwhelming. If I can settle a state investigation for X, and I can make way more than X, then it is worth it to break the rules, if all I care about is profits. Further, I know that my state regulator will want to settle because they want my company’s revenue from our renewal fees and loan originator licensing fees.” From the corporate mindset, there was no wrongdoing. It was all a shrewd, clever business decision.
You may be thinking that I am wishing for harsher penalties. That’s not on my mind. Anytime punishment is harsh all that does is externally motivate the offenders to work even harder at not getting caught. Here is what I wish, though some would call me terribly idealistic.
I wish the mortgage industry, and by that I mean the competing consumer loan companies, the banks who grant credit lines to Paramount Equity, their mortgage broker competitors, the title and escrow companies who earn hundreds of thousands of dollars off of Paramount Equity to refuse to do business with Paramount Equity until they can prove, by way of a written, third party audit on ALL their locations in various states, that Paramount now has systems in place to train their people, compliance systems to properly disclose all fees, and that whoever was in charge of compliance and training is fired and replaced with someone of competence. Is there a board of directors at Paramount Equity? Then they should be asking who made the decisions to run the deceptive ads over and over and over again. Paramount Equity needs to set aside some of their gold to pay a competent attorney to review their radio ads and anyone who makes money off of Paramount Equity should demand this.
Paramount Equity is a member of the National Association of Mortgage Brokers. NAMB: Paramount Equity has violated 5 of the 6 provisions of your code of ethics. NAMB members should bring an ethics complaint against Paramount Equity. If I come back a year from now and see that NAMB is still collecting dues from Paramount Equity then perhaps, as we already know, the NAMB Code of Ethics is meaningless.
What do you think of their radio tag line, “Paramount Equity: Lending with Expertise!” Is this now in itself deceptive advertising? Perhaps they should formulate a new tag line. I’m sure some of our readers will offer suggestions.
*Update: An eagle eyed anon reader along with Roger Ingalls spotted this correction from the Consent Order:
Respondent Paramount admits that during the relevant time period, Paramount did not maintain books and records…processed 56 loans originated by unlicensed loan originator…and, in some aspects of its advertising, were in violation of RCW 19.146.0201(2), (7), (10), and (11). With these exceptions, Respondents neither admit nor deny the Factual Allegations of the Statement of Charges.
About the Author: Jillayne Schlicke
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Jillayne:
I’d wondered where you’d been! Nicely written, I will go read the SOC.
WAMP (Washington Association of Mortgage Professionals) should also chime in.
And, though we may disagree on this point, I believe none of the illegal advertising will stop until the media that profit grossly from it are held partially liable. They are completely sheilded from liablity at present, for illegally advertising consumer credit.
A reasonable penalty for airing illegal advertising should be 3X the revenue. That will ensure that ALL media at least screen clearly illegal ads, and keep the punishment porportional to the revenue and scale of operations.
Hi Roger,
I’ve been teaching a LOT of Realtor classes this spring and writing some new Realtor classes, preparing some new classes at Bellevue College, and getting ready for the new requirements for course providers under the SAFE Act!
Well I did not search the WAMB/WAMP member database to see if PE is a member but I can do that now.
For those interested, the Wash Assoc of Mortgage Brokers voted to change their name to the Wash Assoc of Mortgage Professionals for various reasons.
The WAMB database returned no results for PE.
http://wamb.org/displaycommon.cfm?an=1&subarticlenbr=43
Another great post, Jillayne.
OK, now I’ve read it both documents…
The original order proposed fines of $500K, the revocation of licensing for the principals, and restitution to the borrowers.
Paramount settled for fines of $225,000, a restitution of $139,075 to borrowers, and other fees of about $30K.
Roughly a total of $400K.
And they get to continue operations in Washington State.
They closed 1,700 loans in 2007, no doubt not their best year.
Paramount probably earned at least $1,000 per loan, on average, after expenses (including advertising, operation and employee costs), for a net operating profit of roughly $1.7 million. Subtract the $400K, and you still have a cool $1.3 million.
So yeah, it was a coldly calculated business risk, that resulted in a profitable outcome for Hayes Barnard.
And the phones are ringing there today…
People, stop supporting crime, stop responding to illegal advertising, please.
And, all of you radio stations that accepted Barnard’s money, will you please give it back to your duped listeners? Maybe an apology for abetting crime?
So, I’m dreaming too. It’s a free country.
From Google search..
Sponsored sitesParamount Equity Mortgage- http://www.paramountequity.com
Home Loan Pre-Approval in Minutes. No Upfront Costs & Free Appraisals
and the phones keep ringing…
Unfortunately, it is easy for companies like this to fool the general populace that is so into finding the best deal they set themselves up as nothing but marks…
I must agree. Very well written. I know the jingle, but did not follow their problems. You also exposed that other company in your blog a month ago.
I have played Poker for 24 years before it became popular. On a table there tends to be a “cop” that keeps everyone honest and calls people on their bets/bluffs when someone is getting out of line and raking in too many pots. Eventually they get exposed.
Jillayne are you becoming the table cop? It appears so.
With the jingle and your article I now am suspect of Paramount Equity. Will they go the way of the Shane Company with an even worse jingle? We shall see….
Great reporting though.
I just heard their ad today – referenced “mortgage banker” again!
Jillayne:
After reading the SOC and Final Consent one more time (I know, get a life!), actually Paramount DOES admit wrongdoing.
From page 2, E. Admissions
Respondent Paramount ADMITS that during the relevant time period, Paramount did not maintain books and records, processed 56 loans originated by unlicensed originators, and were in violation in some aspects of its advertising.
Evidently, they did not all agree that ALL of the charges were valid. I was kind of hoping they would have charged Hayes with excessive use of hyped-adjectives, and improper use of oily vocal tones. Those would have stuck.
Makes one kind of wonder what is happening with Countrywide’s case, which makes Paramount’s seem like small potatoes…,
http://www.dfi.wa.gov/CS%20Orders/C-08-030-08-SC01.pdf
The state budget is shy a few billion…the $6-7M in proposed charges could restore a few teachers’ positions, or pay for some poor kids health care… , and it would barely create a blip in Mozillo (or Lewis’) retirement portfolio…
Update: An eagle eyed anon reader along with Roger Ingalls spotted this correction from the Consent Order:
“Respondent Paramount admits that during the relevant time period, Paramount did not maintain books and records…processed 56 loans originated by unlicensed loan originator…and, in some aspects of its advertising, were in violation of RCW 19.146.0201(2), (7), (10), and (11). With these exceptions, Respondents neither admit nor deny the Factual Allegations of the Statement of Charges.”
Thank you Roger and Anon!
Hi Jillayne,
Thanks so much for your in-depth analysis of this slimy operator whose flat-out lying in their advertisements has left me steaming as I am driving to or from work. I’m just disappointed that we live in such a permissive society that they are still allowed to do business in our state. I’m pretty sure that if they had run these same ads 15-20 years ago, the outcome would have been significantly different.
I appreciate your restrained and factual reporting on this issue. I couldn’t do it myself as I am just too darn mad at them!
Jillayne:
Here is another slimy CA lender (Win Financial) that got caught by DFI for deceptive ads.
http://www.dfi.wa.gov/CS%20Orders/C-08-114-08-SC01.pdf
This time, it was those predatory mailings that are made to look like they are from your own mortgage servicer, warning of a pending adjustable rate increase.
The original fine was $500,000 and revocation of license, but in the consent order it was bargained down to probationary suspension of license and a $10,000 fine.
I should know a lawyer so good!
In the statement of charges, you will see that they mailed 14,500 solicitations, received 390 calls, and took 95 applications.
So, let’s see if crime really does pay, even if you are caught red-handed. I’ll have to make a few admittedly speculative assumptions.
14,500 mailings, cost of $1 ea= $14,500
Generates 390 calls (2.69%, unusually high for direct mail, but then, if you are allowed to cheat and lie, maybe not much),
Leading to 95 applications, with a fallout of 50% (?), results in 47 loans. Each loan should have generated conservatively $3,000 gross revenue, for a total revenue of $141,000.
For a cost of only $14,500, plus the $10,000 fine, net profit (before any additional expenses… office rent, phone, etc.)
=$116,500
Yup, any reasonable businessman (lacking any moral compass) would conclude that crime does pay in WA state, and pays handsomely.
Of course, I wan’t there in the hearing, maybe WIN had a sick mom to support or something to make his crimes appear to be excusable.
Or, maybe, Win Mortgage was able to successfully plead “Everyone Does It!”
I know I have received at least two mailed solicitations in the past 3 months that were similar to the ones sent by Win, so that MAY be a reasonable excuse.
But, until we start to reject the excuse that “Everyone Does It”, these crimes will continue, as it appears to be entirely rational to commit the crime, for profit, despite the risks.
I’d complain more often, if I had nothing else to do in life. As it is, I complain enough.
Maybe if more people complained, AND sent these deceptive ads to DFI, this abuse would end.
Here’s where you can start.
http://www.dfi.wa.gov/cs/complaint.htm
C’mon folks, it’s a little bit like picking up litter in your neighborhood. If we all do a little, the results will be spectacular. If we all walk past it, the neighborhood will soon be a dump, and the task of cleaning it will be daunting.
So is the answer harsher penalties/larger fines or is there another way out of this deceptive advertising mess?
There are several ways out of the mess. Which is optimal, I’m not sure.
1. Hold the media accountable for deceptive advertising, and fine them in proportion to their revenues derived from the deceptive advertising (include the Post Office and internet in this, since they are media carriers for profit).
2. Make the fines/costs to the lenders large enough to wipe out the profitability of illegal advertising.
3. Make it socially unacceptable among your peer group. Increase professionalism in the industry.
4. Have lenders police other lenders, with the assistance of regulator’s stringent enforcements.
Frankly, I have found only little interest and effort among lenders (and others) to do anything about deceptive advertising. There are notable exceptions that I could name, but I do not know that they would wish to be “outed”.
Certainly, it has not benefitted me in any way financially to crusade against this, so others in the industry have probably concluded it is not in their best interest to devote time and energy to the cause.
Whether for good or bad, it seems I have a strong Quixote-complex that compels me to battle windmills. That kind of idealism is not encouraged in this industry; pragmatism rules the day.
It is from these observations that I conclude that options 1 and 2 are more likely to produce short term results, while options 3 and 4 are more like glacial movements. I predict it will happen, and is worthy of encouragement, but it will be a slow change in societal norms that will hopefully prevail.
The pragmatist always bets on the basest of human natures (greed, lust, envy), while the idealist bets on the best of human natures.
The pragmatist ends up with most of the money, and probably more friends. The idealist, if lucky, gets a song.
Sigh…..
[...] Schlicke has a great post at Rain City Guide about Paramount Equity Mortgage, with an office in Bellevue, and their [...]
HI guys;
We have not one, but TWO ugly loans which are breaking us from good ol’ Paramount Equity Mortgage. JUST YESTERDAY I filed a formal complaint with the State of Washington and intend to follow it with a formal lawsuit. I spent a lot of time on the phone with Matt Dawson a few months ago after reaching out to him for help, and listened to him tell me that “He has never been sued for a mortgage in his life.” I am going to assume that is because he takes care of disgruntled borrowers before they make it to court-as he has done in Washington State this past May.
Washington is acting like a cheap call girl, I must say. They want that money, so they let them continue business, that is my opinion. They got a slap on the wrist. The citizens who signed these toxic documents are suffering EVERY DAY and losing their homes because Matt and Hayes need to make their yacht payment. Our financial lives, that took 30 years to build, have been crushed because of the decpeption that occurred in their office (where no employee appeared to be over 40 years of age) I remember asking at the closing table, “Does anyone have gray hair in this building??!!” It was unnerving. The parking lot looked like a BMW Sales Lot.
I have been strongly encouraged to pursue my case by a VERY knowledgeable attorney (it’s unbelievable what they did with our loans, and unfortunately for them, my attorney delighted in the POSTMARKED envelopes I still have in my possession packed full of documents with evidence of their deception in my counsels capable hands).
Soon, I intend to stop crying about our mortgages, as I have been doing over the last THREE YEARS… Cheers to you Jillayne for hanging with this. They are slimy snakes who prey on every person who closes a loan with them without the benefit of legal counsel at their side to cry foul.
And Washington State Department of Financial Institutions: SHAME ON YOU. Shame on you.
I hope you hear more.