Lawsuit Claims Guild Mortgage Co. Maximized Fees By Failing to Inform Borrowers of Right to Cancel Private Mortgage Insurance

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A proposed class action alleges Guild Mortgage Company has unlawfully failed to provide borrowers with an annual written statement that outlines their right to cancel private mortgage insurance (PMI) after certain thresholds have been reached. 

The 26-page complaint out of Hawaii alleges more specifically that Guild Mortgage has failed to provide borrowers with statutory documentation as a means to maximize fees assessed on unsuspecting borrowers who qualify for the cancellation of their private mortgage insurance. The suit alleges the defendant has also misrepresented the amount of time in which it could continue to collect PMI after a borrower’s loan qualified for cancellation. 

“As a result, Defendant Guild Mortgage gained additional monthly PMI fees from Plaintiff and Class Members, in some cases for more than one year,” the case claims. 

According to the suit, lenders such as Guild Mortgage require PMI for most borrowers who put up less than 20 percent of a property’s value as a down payment. Lenders require PMI in these instances because it protects them in the event that the borrower defaults, the case says. 

As a mortgage servicer, the defendant profits from fees assessed against the mortgage accounts it services, and companies such as Guild Mortgage pull in “tremendous profits” through the collection of monthly PMI fees, the lawsuit says. 

“Defendant’s incentive, therefore, is to assess as many monthly PMI fees as possible, whether lawful or not, and to collect all outstanding fees and costs prior to applying borrowers’ payments to interest and principal,” the complaint alleges. 

As a means of tackling lenders’ abusive termination of PMI, Congress passed the Homeowner’s Protection Act of 1998 (HPA), a law that establishes that a borrower may request cancellation of their PMI when the principal balance on the mortgage declines to 80 percent of the original value of the property, the complaint says. The law statutorily mandates that notifications are to be provided annually by a lender when PMI is in place in order to provide a borrower with a written statement of their rights under the HPA as they pertain to canceling or terminating PMI. 

The lawsuit alleges Guild Mortgage Company has failed to provide borrowers with these notices, and thereby caused proposed class members to pay PMI fees well past the date on which they were eligible to have their policies canceled.

“As a result, Defendant collected monthly PMI fees that were unearned, fraudulent, illegal, excessive, repetitive, unfair, deceptive, false, and fictitious by charging them to unsuspecting borrowers’ accounts,” the suit alleges. 

As the complaint tells it, Guild Mortgage “knew at the outset that Plaintiff and Class Members would very rarely remember to request PMI cancellation three years or so after closing.” The defendant, the case says, continued to collect PMI fees from the plaintiff, a Honolulu homeowner, for 11 months “and counting” after the individual qualified to cancel his PMI insurance. 

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