A pair of putative class actions now pending in Cook County courts accuse M&T Bank and Stearns Lending of improperly soaking up hundreds of millions of dollars in mortgage interest after principals were paid, by substituting their own “misleading” notice forms for the required federally-approved versions.
The suit against Stearns was brought by Gloria J. Wooden. The suit against M&T was brought by plaintiffs Fabiola M. Reyes and Kerby W. Reyes. All plaintiffs live in Cook County and are represented by the Law Offices of Arthur C. Czaja & Associates, of suburban Niles. The suits were filed April 5 in Cook County Circuit Court.
Wooden said she bought a home in 2013 in Oak Park, with a loan from Stearns. Wooden paid off the loan Aug. 11, 2017. The Reyes said they bought a home in 2012 in Chicago with an M&T loan, which they paid in full Nov. 22, 2016.
M&T Bank, which is based in Buffalo, N.Y., is a Fortune 500 company with more than 800 branches on the East Coast. Stearns Lending is based in Santa Ana, Calif., and is the fifth-largest privately held lender in the U.S., according to records.
The suits center on “post-payment interest,” which is interest paid after principal has been paid off. Between 1985 and 2015, lenders of loans insured by the Federal Housing Administration were able to collect such interest for the remainder of the month in which the principal was paid, as long as the principal was paid after the first of the month.
Lenders also needed to furnish borrowers, at the appropriate time, with notice the lender was going to gather up such interest, how the interest was to be collected and how the borrower could avoid paying the interest. This information was to be in a form approved by the FHA.
Unlike other federal agencies involved with mortgage loans, such as Fannie Mae and the Veterans Administration, the FHA allowed post-payment interest between August 1985 and January 2015. According to plaintiffs, a federal regulation was enacted that ended the practice, because the practice penalized borrowers who paid off loans early. The new regulation applied to FHA-insured mortgages closed on or after Jan. 21, 2015.
However, the regulation was not retroactive, leaving about 7.8 million borrowers who took out mortgages before that date, vulnerable to the extra interest, according to the suits. Wooden and the Reyes said they were such borrowers.
However, Wooden and the Reyes alleged they should not have had to pay the interest to M&T or Stearns in the first place, because the institutions used notice forms that were not approved by the FHA and were “misleading and confusing.” Plaintiffs said “hundreds of millions of dollars” were wrongly collected this way.
Plaintiffs want reimbursement of the post-payment interest they forked over to M&T and Stearns, as well as damages of an unspecified amount. Further, plaintiffs want defendants to stop exacting the interest from other similar borrowers.
The Wooden suit is assigned to Circuit Judge Thomas R. Allen. The Reyes suit is assigned to Associate Judge Sanjay Tailor.