First Magnus Slam Shut In Its Casket By The Man
First Magnus has been closed but now they’re done for sure. In this kind of market and in the next, we should not use any business that is related or affiliated with the creators of First Magnus. The creators have created StoneWater Mortgage, operating in their previous First Magnus office.
Collapsed lender First Magnus Financial Corp. sought to stifle competition and secure business by paying illegal fees to real estate companies and builders, a new government audit report says.
The Aug. 4 report said First Magnus paid more than $753,000 in marketing and non-competition fees from 2003 to 2006 to real estate companies Long Realty Co. and Realty Executives as well as to builders T.J. Bednar and Santa Anna Homes.
In exchange for the fees, the real estate companies and the builders referred $937 million in mortgages to First Magnus, said the report, by the U.S. Department of Housing and Urban Development Office of Inspector General.
Paying companies to refer customers to mortgage lenders is a fairly common practice in the real estate industry, said Lawrence Jacobson, a Beverly Hills, Calif., real estate attorney.
But such payments violate the federal Real Estate Settlement Procedures Act, and HUD is cracking down on them more aggressively, agency official Joan Hobbs said.
RESPA, as the law is known, forbids mortgage lenders or other parties involved in real estate transactions from giving or receiving “any fee, kickback or thing of value” in exchange for referring business.
Former First Magnus executive Karl Young said in an e-mail Friday that “First Magnus did not believe the relationships with the builders and real estate companies referenced in the report to be a violation of RESPA.”
In an e-mail forwarded by a public relations representative, Long CEO Rosey Koberlein said her company is “unaware of the substance of the allegations in the Inspector General’s audit report. We have only recently obtained a copy of the report and are reviewing it.”
Realty Executives Southern Arizona CEO Anthony Azar did not return a call for comment. Calls to Tucson builder T.J. Bednar also were not returned.
Mason Cave, chief financial officer for Peoria-based Santa Anna Homes, said he could not find any evidence that First Magnus paid referral fees or other incentives to his company.
Consumers often rely on real estate agents’ recommendations for mortgage lenders or other professionals, Jacobson said.
Sometimes companies are tempted to cross the legal line and give money, gifts or vacations to real estate agents for those referrals, he said.
“It’s inappropriate, and it’s wrong, but unfortunately, there are a lot of people who think that way,” Jacobson said.
Kickback payments can also end up being passed along to buyers as hidden costs, Jacobson said.
Hobbs, HUD regional inspector general for the audit, said RESPA is intended to help preserve consumers’ rights to choose their own mortgage companies.
“Who knows if First Magnus isn’t gouging the customer?” Hobbs said. “The customer needs to have an opportunity to select from a variety of sources, not just one.”
The report recommended administrative sanctions against First Magnus executives. It did not refer to any possible actions against the real estate and building companies.
Last month, HUD issued a similar report stating that First Magnus also paid illegal fees to mortgage brokers from 2003 to 2006.
Both reports focused most on violations involving Federal Housing Administration-backed loans, but RESPA applies to all mortgages, Hobbs said.
The most recent report said First Magnus entered into illegal agreements with real estate firms and builders, requiring them to market First Magnus exclusively. The lender also paid Long parent company Home Services of America to funnel customers to a jointly owned mortgage business and to discourage the use of competitors, the audit says.
One buyer who felt “strong-armed” into using First Magnus was Abbie Gullickson, a real estate agent who bought a new house in the Phoenix area.
Gullickson did not use a builder referred to in the report, but said only First Magnus marketing materials were available at the site, and she was offered price incentives for using First Magnus. The builder has since filed for bankruptcy.
First Magnus collapsed and filed for liquidation bankruptcy last August.
Young and other former First Magnus executives have since started a new lender called StoneWater Mortgage, which operates in First Magnus’ former headquarters at 603 N. Wilmot Road.
Credits: Arizona Daily Star
August 10th, 2008 at 11:04 pm
Hello. The source of this content was the Arizona Daily Star — Web site, http://www.azstarnet.com (listed incorrectly above). I just wanted to make that clear to avoid confusion.