Federal Savings Bank is a Chicago-based bank that targets its services to veterans and seniors. It is controversial because its chairman was indicted for giving an illegal loan to former Trump-advisor Paul Manafort, a convicted felon who is likely to be pardoned by Donald Trump later this year. But now Federal Savings has been accused of yet another scandal — abuse of vets refinancing their home loans. The way in which they exploited one specific veteran was using a very complicated scheme to hike the loan interest rate just before the loan was closed. The scheme revolves around the Adverse Market Refi Fee.
What is the Adverse Market Refi Fee?
In August 2020, Fannie Mae and Freddie Mac announced a surprise “Adverse Market Refi Fee” that some estimate could tack on an unexpected $1,500 fee to the average borrower’s refi for a $300,000 loan. The mortgage industry pushed back on the two large mortgage purchase giants and secured an extension until December 1st before this fee went into effect. This fee is also known as a “Loan-Level Price Adjustment”. They are one and the same.
The fee is designed to be a one-time 0.5% fee imposed on any home refinance. With this new fee, for example, refinancing a loan of $300,000 after December 1st would cost an extra $1,500. Given the historically low mortgage rates, the fee is inconvenient but not a deal-killer for most people refinancing. However, Federal Savings Bank took a very nefarious twist on this fee. Rather than impose a one-time fee, instead the bank used the fee as an excuse to raise a homeowner’s interest rate from 2.3% to 2.8%.
How Did Federal Savings Bank Rip-Off its Vet Client?
In the case that we documented, Federal Savings Bank committed three fraudulent actions: