Lawsuit says lender overcharged veterans

ATLANTA --- Military veterans who refinanced their mortgages in expectation of lower interest rates might have been cheated on fees by their bank, according to a lawsuit pending in federal court.

The allegations have prompted Sen. Johnny Isakson to call for a congressional hearing, and the bank, Wells Fargo, has set up a toll-free number its customers can call if they suspect they're victims.

Columbus, Ga., attorney Jason Crawford filed suit in January on behalf of Greta Wynn of tiny Temple, Ga., near Carrollton. Mr. Crawford is asking the judge to deem it a class-action suit so he can represent what he believes might be thousands of veterans across the country who were overcharged by the bank and their closing attorneys, Morris Hardwick of Atlanta.

Class-action status would allow Mr. Crawford to represent all of the veterans in one trial rather than each having to sue separately.

He is asking for repayment of the overcharges with interest, tripling the repayment amount as a penalty, and allowing a jury to add penalties.

"Wells Fargo and Morris Hardwick conducted and participated in the enterprise through an ongoing, open-ended pattern of racketeering activity," the suit states. Mr. Crawford alleges veterans were systematically defrauded by being assessed illegal and unauthorized charges.

Wells Fargo formally denied all the allegations, including Mr. Crawford's assertions that the bank and the real estate attorneys on the loans are guilty of racketeering. The bank has begun looking into individual loans that customers have questioned.

"The issue is whether there were key members or closing agents that worked around our policies and controls to monitor them," said bank spokeswoman Teri Schrettenbrunner.

Mr. Isakson, who serves on the Senate Veterans Affairs Committee, called for a congressional probe when he learned of the allegations in a report by television station WAGA-Fox 5 in Atlanta. He also asked the Department of Veterans Affairs to look into its own practices, and the agency concluded it was in compliance.

"These are serious allegations, and we absolutely should investigate to see if wrongdoing did take place and if so how the VA can prevent it from ever happening again," he said. "Our veterans deserve nothing less."

When Congress permitted the VA to guarantee veterans' no-money-down bank mortgages, it prohibited the banks from charging fees totaling more than 1 percent of the loan amount. Other mortgages typically have higher fees, but the VA loans were seen as a way of thanking the vets for their military service.

To deal with the fee cap when a veteran buys a home, the seller may pay some of the closing costs directly to the bank, according to Guy Cecala, publisher of Inside Mortgage Finance. And there are other methods.

"VA is somewhat unusual in that they have very specific requirements designed to shield the borrower from certain fees. It hasn't always worked very well," he said. "What (the real estate industry has) done historically to get around that is they jack up the price of the house. It's routinely done. At the end of the day, it's still the best deal for the veteran."

The suit alleges veterans who were refinancing became the victims. In those circumstances, the house isn't purchased from anyone. It remains in the veterans' name, and only the loan is rewritten.

With no seller to absorb the attorney's fees, banks must pay them out of their profits. "They do a lot of work, and basically you've got to find a way to pay them," Mr. Cecala said.

Typical fees would eat up all of the bank's charges, he said. Without a profit, banks aren't going to be eager to make many loans to veterans.

The suit claims Wells Fargo instructed its attorneys to lump their fees in with the "title search" and "title exam" fees, which can legally be passed on to the veterans who are borrowing the money.