$36 Million First Horizon Settlement

“We continue to believe that neither our predecessor, McGuire Mortgage, nor we acted contrary to applicable law,” said Peter F. Makowiecki, president of mortgage banking for First Horizon, in a written statement. “However, we agreed to this settlement to avoid the risks, and to end the ongoing expense, associated with this protracted litigation.”

The case involved loan origination fees permitted by Kansas and federal law but restricted or not permitted by Missouri law, First Horizon explained in the statement. When McGuire Mortgage Company made the second-lien mortgage loans, most of them were in the Kansas City market, which straddles Kansas and Missouri, First Horizon explained.

McGuire Mortgage Company, a mortgage broker that merged with First Horizon, was accused in court documents of violating Missouri’s Second Mortgage Loans Act by charging excessive and unauthorized fees for loan discounts, tax services, flood certificates, express mail, direct mortgage brokerage, underwriting, processing and origination.

In general, the state’s second mortgage act says bona fide closing costs paid to third parties include fees for title examination, title insurance, preparation of a deed, for notarizing deeds and other documents, appraisal fees and credit reports. The state law also limits origination fees to two percent of the principal for loans obtained before 1998 and to five percent for loans obtained after 1998.

The plaintiffs claimed that McGuire Mortgage violated Missouri law by charging or receiving fees and costs that were not allowed by the law or in excess of those fees and charges allowed by the state’s law.

The settlement is subject to court approval.

First Horizon first disclosed the settlement last month when it issued an earnings warning indicating expected third quarter operating income would be $35 million less than previously expected.

In unrelated litigation, First Horizon still faces a lawsuit filed its current and former loan officers. The group claims the company violated state law and federal law by failing to pay earned commissions and violated federal law by failing to pay overtime wages to loan originators who worked more than 40 hours per week.

It has been estimated that the class of loan officers eligible to participate in that court action could reach as high as 5,000. First Horizon has contended in court documents that it does not have to pay overtime to its loan originators because the workers are exempt from federal overtime provisions under the administrative and outside sales exemptions.

First Horizon spokeswoman Kin Cherry declined to comment on the loan officers’ lawsuit because the case is still pending.

First Horizon National Corp. provides financial services to individuals and business customers in more than 40 states. The corporation’s three major brands — FTN Financial, First Horizon and First Tennessee — provide mortgage banking and servicing as well as retail/commercial banking with the largest market share in Tennessee.

Lisa D. Burden is a legal analyst for MortgageDaily.com and holds a law degree from the University of Maryland. She is currently a freelance journalist who previously wrote for Institutional Investor publications and the Baltimore Daily Record.

e-mail Lisa at: burdenlisa@yahoo.com