Equity Prime Mortgage ordered to pay $1.3 million in loss-mit suit

A large nonbank lender was ordered to pay a mortgage investor over $1.3 million in a dispute calling attention to subservicing relationships and the collection of government insurance proceeds tied to loan modifications. 

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U.S. District Judge Dale E. Ho ordered Equity Prime Mortgage to pay $1,368,612, including prejudgment interest, in a yearslong dispute over insurance proceeds from government-insured loans issued earlier this decade. It’s a notable judgment against a nonbank lender which argued over contract language with an investor and related parties.

The case focused on contracts between EPM, investor Stanwich Mortgage Acquisition Company VIII, and subservicer The Money Source, part of Servbank. The Money Source, a subservicer for loans transitioning between EPM and SMAC in early 2022, engaged in loss mitigation on 14 loans in question. 

The judgment consists of $429,280 in government agency insurance proceeds SMAC claims that EPM improperly withheld, and $542,930 in lost insurance recoveries due to alleged servicing delays. Those totals were increased with prejudgment interest of 9%, over a four-year period. 

Judge Ho also granted summary judgment in favor of The Money Source and Servbank, which owns TMS, dismissing EPM’s third-party claims against them. Neither attorneys for the parties nor a spokesperson for EPM responded to requests for comment Thursday. 

The dispute

The investor entered into a contract with EPM in February 2022 to buy agency-insured loans. The Money Source serviced the mortgages during an interim servicing period. 

There’s no dispute that the loans underwent loss mitigation. While The Money Source filed insurance claims for eight of the loans, EPM argued that SMAC, per their contract, wasn’t entitled to those funds. 

The Money Source also allegedly didn’t file partial claims for six additional loans that underwent loss mitigation, during its servicing period. While EPM blamed its subservicer for not filing claims within a statutory 180-day window, the investor nonetheless requested the $542,930 in unrecovered insurance proceeds.

Judge Ho, in ruling against EPM, found that the language in the investor contract was unambiguous. 

“The provision’s broad language evinces an intent for it to apply to any payments relating to the mortgage loans at issue,” he wrote. 

EPM immediately appealed the ruling to the 2nd Circuit Court of Appeals this week. 

The wholesale player has grown in recent years, generating over $3.6 billion in origination volume last year according to Home Mortgage Disclosure Act data. That volume approached its production during the refinance boom, when the company was formerly a retail originator. 

The company received some scrutiny from the Department of Housing and Urban Development last year, when the regulator terminated some of its regional approvals to submit Federal Housing Administration loans. The lender defended its lending practices, and was still approved to originate FHA loans across the country.