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Texas mortgage lender pays $4.5m to settle fraud charges

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A Texas mortgage lender has replaced its CEO and agreed to pay $4.5 million for its role in a scheme to get North Carolina consumers into modular and manufactured home loans that they couldn't afford, state Attorney General Roy Cooper said today.

W.R. Starkey Mortgage, of Plano, has provided home loans for North Carolina consumers who bought homes from Phoenix Housing Group, Inc. between January 2007 and September 2008.

Phoenix is based in Greensboro and does business as HomesAmerica and Southern Showcase Housing. The company operated in Asheboro, Asheville, Burlington, Granite Falls, Greensboro, Hendersonville and Winston-Salem.

Cooper alleged that Starkey worked with Phoenix to improperly qualify borrowers for loans and finance the sales of manufactured homes and land at inflated prices.  As a result, consumers wound up with loans that exceeded the actual value of the homes they purchased.

John Mack, 50, bought a manufactured home in Gibsonville from Phoenix in 2008 for $153,000. He put $2,000 down and had an adjustable rate mortgage that started at 6 percent.

Mack said he was making $1,900 a month when he got the loan, and that he could barely make the payments. Still, he had no idea Phoenix and Starkey were inflating prices.

He said Phoenix and Starkey had their own appraisers.

Since buying the home, Mack's salary has been reduced to $1,400 a month. Last year the loan's interest rate jumped.

Mack said he'll use the $26,000 from the settlement to refinance his mortgage. He plans to get another appraiser done to find out just how inflated the price was.

"I like the house. I like the neighborhood," he said. "It's just what I've had to go through since I got here."

Under the settlement announced today, Starkey will remove its president in addition to its chairman and CEO, William Starkey Jr., resigning.

The company will pay $4,446,000 to 171 families who purchased mobile or manufactured homes from Phoenix, a refund of $26,000 per family.

The company will pay $125,000 for consumer education and to cover the costs of the enforcement action.

It will also pay $25,000 to the Western Piedmont Council of Government to help provide financial counseling to consumers who receive refunds under the settlements.

Starkey is permanently barred from making loans when a manufactured housing dealer is a party to the deal, collecting financial information about prospective borrowers from anyone other than the borrowers, and charging discount points unless requested and paid by a borrower to reduce the interest rate.

Starkey employees and agents were accused of failing to verify financial information provided about borrowers by Phoenix, disguised the source of the information, placed inaccurate information on consumers’ credit reports to boost their ability to qualify for loans, made loans without regard to borrowers’ ability to repay, and added discount points to mortgages without reducing the interest rate as required by law. 

After Starkey officials were notified of the fraud, they agreed to corrective actions and consumer refunds, Cooper said in a statement.

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About the blogger

Business reporter David Bracken came to the N&O in 2004. He covers commercial and residential real estate. Contact David at 919-829-4548 or e-mail him.