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Firm Under Suspicion Files Antitrust Suit

Courts: San Juan Capistrano's Patriot accuses reverse-mortgage leaders of price-fixing, boycott.


SAN JUAN CAPISTRANO — A financial planner that was accused a year ago of charging senior citizens exorbitant fees for advice on reverse mortgages has sued industry leaders, alleging they fixed prices and conspired to put the company out of business.

Patriot Inc. and its owners, Jeffrey G. and Peggy W. Butler, contend that they have been illegally boycotted by the nation's top two reverse-mortgage lenders, a national referral service, the American Assn. of Retired Persons and the Federal National Mortgage Assn., known as Fannie Mae.

The antitrust lawsuit, filed Tuesday in federal court in Washington, seeks unspecified damages for what the San Juan Capistrano company and the Butlers call a "concerted refusal to deal" with Patriot, thus eliminating 76% of its business.

Reverse mortgages allow cash-poor people to draw on the equity in their homes, while delaying repayment until they sell or die. The lenders, in turn, sell those loans to Fannie Mae, the only major buyer of reverse mortgages.

Patriot, which once had operations in 38 states, charged customers fees amounting to 8.5% of their loans, according to the suit. But, it asserts, the defendants agreed among themselves to limit all such fees to a flat $500 and to refuse to do business with any company that didn't abide by their rules.

Besides AARP and Fannie Mae, other defendants are Transamerica HomeFirst Inc. in San Francisco, Wendover Funding Inc. in Greensboro, N.C., and Ken Scholen and his referral business, National Center for Home Equity Conversion in Apple Valley, Minn.

Transamerica and Wendover are the leading reverse-mortgage lenders.

Scholen and AARP act as public clearinghouses, explaining the unusual loans and referring the elderly to various lenders. They receive fees from lenders, insurers and others who get the referrals, the suit alleges.

Patriot and the Butlers also allege that AARP, Scholen and his company defamed them by calling their operation "a scam."

Wendover President Larry Walker said his company "has acted appropriately without discrimination against anybody." Scholen couldn't be reached for comment, and the other defendants wouldn't discuss the suit.

Last year, Patriot was one of several companies targeted in a U.S. Housing and Urban Development Department crackdown on estate and financial planners that prey on the elderly by charging outrageous fees for information on reverse mortgages.

HUD accused the companies of charging as much as 10% of the loan amount simply for information that the government provides for free. HUD said it would disqualify lenders from Federal Housing Administration programs if they knowingly make loans to people who have to pay such companies.

Fannie Mae also issued rules prohibiting lenders from selling it reverse mortgages that came from financial planners and other third parties.

Patriot went to court last year and won a preliminary injunction halting HUD from enforcing its rules. A similar effort against Fannie Mae, however, was dismissed.

At the time, Butler said Patriot was justified in charging customers 8.5% in loan fees because it helped to arrange for painters and other workers to improve a house and, possibly, increase its value--and the loan the customer could get.

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