Federal regulators sue biweekly mortgage company
Mortgage company has since suspended business
Updated with company response
The ads from Xenia,Ohio-based Nationwide Biweekly Administration promise to take years off your 30 year mortgage payment.
Mortgage broker Jason Swart explained how biweekly payments work: "If you're paying biweekly, you're making one extra payment a year on your mortgage which is reducing that interest expense and possibly saving tens of thousands of dollars."
For example, if you're paying $1,400 month for mortgage, you pay $700 every two weeks under the NBA plan. Because an extra pay cycle comes up 2 months each year, you end up making one extra complete mortgage payment per year.
Nationwide Biweekly Administration, not connected in any way to Nationwide Insurance, promised a “100% percent savings guarantee” to their customers. The Federal Consumer Financial Protection Bureau accused NBA of making “false promises” to customers with “misleading” marketing. They sued NBA this May.
Federal regulators declined to answer our questions because of their lawsuit. Last month, NBA began running television ads against the federal regulator suing them. The ads called for viewers to call CFPB Director Richard Cordray and object to the lawsuit.
Major banks, including Bank of America, BMO Harris, and US Bank, pulled out of doing business with NBA, leading them to suspend business operations December 7th.
The company does give out a number for customers with questions: 800-564-5693. Nobody from NBA answered 10 Investigates after multiple calls and emails.
Tuesday evening, after 10 Investigates aired its first segment, a spokesperson with NBA responded. “The toll free line you called has been largely unmanned because of federal regulator efforts to put these employees out of work.”
According to federal regulators, NBA customers could end up losing money. The federal lawsuit claims NBA pockets up to a $995 sign-up fee and $101 in annual fees. NBA responded that their average fee is $550 and that only 5 percent of customers pay the minimum. They dispute the federal lawsuit that annual fees exist.
NBA does not announce any plans to reimburse those fees in an email sent to their 100,000 customers.
If you have the money and want to pay off your home mortgage faster, financial planners say there's a way you can do it on your own. "Divide up your principal and interest payment by 1/12th and apply that additional amount to the principal each month and you can get the same results," Swart explained.
But NBA defends their business model, saying “most people don’t have the discipline to do this.” They cite a study saying only 12% of people have the discipline needed to pay biweekly mortgages on their own.
Some financial planners advise not to arrange a biweekly payment plan with your lending bank. That's because some lending banks do not post those extra payments you make for months, meaning you lose out on reducing your interest.