Friday, June 22, 2007

NovaStar pays $5.1 million to settle class-action law suit

NovaStar, one of the subprime borrowers hardest hit by the current Real Estate market slowdown, has agreed to pay $5.1 million to settle a lawsuit accusing it of charging excessive interest rates to cover broker fees. The sum includes $3.3 million in payments to 1,600 class members and $1.8 million for legal fees.

As problems in the subprime sector started emerging, borrowers and investors began filing class-action lawsuits against subprime lenders, accusing them of various wrongdoings. Some law suits are already getting settled, and I guess this comes as a relief to many. NovaStar said it does not admit any liability, and decided to settle the case because it was an obstacle to a possible sale. Officials claim that the company has followed “standard practices in the mortgage industry that comply with the law and applicable regulations” – which doesn’t say much, since regulation has been quite loose on lending practices and many procedures that became standard within the industry were not in borrowers’ best interest.

Meanwhile, mortgage rates eased somewhat this week, but are still higher than earlier in the year. Interest on 30-year fixed rate mortgages averaged 6.69 this week, down from 6.74% a week ago. 15-year fixed-rate loans dropped to 6.37% from 6.43% last week, 5-year hybrid adjustable-rate mortgages were at 6.31%, down from 6.37%, while 1-year adjustable loans averaged 5.66%, compared to 5.75% a week earlier.

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