In the face of controversy that its mortgage origination practices that have led to a high rate of foreclosures, Dublin, Ohio-based builder Dominion Homes announced it will form a mortgage unit with Wells Fargo Home Mortgage. The new company, with a name yet to be released, will replace Dominion's financial services affiliate and will offer Wells Fargo products, underwriting, compliance, and loan-processing services. The operation will run as a mortgage bank in central Ohio, Kentucky, and Indiana with San Francisco-based Wells Fargo & Co. holding a major stake of 50.1 percent.
Last year, the U.S. Department of Housing and Urban Development began an audit of loans arranged by Dominion. HUD declined requests to speak with us about the on-going investigation and, at press time, findings are still pending. “We haven't gotten any results yet and have no specific date to receive them,” says Lori Steiner, senior vice president and chief marketing officer.
In addition, three class-action lawsuits were filed in February against Dominion Homes by homeowners claiming their houses are worth less than they paid for them. “We haven't officially responded to them yet,” says Steiner, “but we firmly believe that all are without merit.”
The Columbus Dispatch reported that Dominion is under investigation by the Ohio Attorney General Jim Petro's Office regarding their mortgage practices, although a representative from the Attorney General's office will neither confirm nor deny that claim. “We cannot confirm that there is an investigation,” says Mark Anthony, spokesman for the office. What they do report is that the office has received 89 consumer complaints on Dominion Homes from 2004 through mid-March of this year.
According to Mike Catavera, a National City Mortgage manager for the national builder division, changing the structure of its approach to the mortgage business should provide several benefits to Dominion. By funneling loans into a big operation, they can see economies of scale. “Someone will be touching these loans at all times,” he says. In addition, it shifts the risk of repurchase back to the servicer. “Wells Fargo will be completely responsible for all the operational elements,” of the new entity confirms Steiner.
The builder's profitability is comparable with the new structure. “The 49 percent net income [our partners] get under the deal is comparable to the 100 percent they'd get of a wholly-owned mortgage arrangement because they typically act as a broker,” says Catavera.