More states file suits claiming abuses in mortgages


WASHINGTON -- Operations Desert Shield and Desert Storm may be over. But Operation Mortgage Storm saw its heaviest action of the year in the past two weeks.

Here's what's happening. Operation Mortgage Storm is what some lawyers have dubbed an ongoing, multistate, legal attack against alleged widespread consumer abuses in adjustable-rate mortgage (ARM) payment computations and escrow account overcharges on both fixed and adjustable loans.

On the adjustable-rate front, large-volume, prominent lenders are being hit with class-action suits charging that consumers often are asked to pay too much when their loans reach rate-adjustment intervals. In the wake of a series of new suits in late February and early March, consumers in virtually every state are potentially affected by the litigation.

On the loan escrow front, a group of state attorneys general from across the country say mortgage lenders routinely demand excessive monthly payments from borrowers on both fixed-rate and adjustable-rate loans. In early March, six additional states joined six others in a class-action suit against General Motors' home-loan subsidiary, GMAC Mortgage Corp. Filed originally in late December, the suit alleges systematic overcharges in borrowers' mortgage escrow accounts.

GMAC Mortgage is the fourth largest home-loan servicer in the country. Officials of the firm have denied the charges and vowed to fight the suit in federal court.

The six new states joining the class action are Florida, Connecticut, New Jersey, Pennsylvania, Wisconsin and Idaho. The original six attorneys general who brought the suit are from California, New York, Massachusetts, Texas, Minnesota, and Iowa.

Spokesmen for the states say other big mortgage lenders could come under attack for their escrow practices, but GMAC was selected as a target large enough to have national impact.

Targeted in new class actions on alleged ARM payment violations were First Nationwide Mortgage Corp., a subsidiary of the $22 billion-asset First National Bank, and Banc One Mortgage Corp., a subsidiary of Banc One Corp. First Nationwide, headquartered in San Francisco, operates coast-to-coast through 32 offices in major markets, according to one company official. It hasapproximately $11.1 billion in adjustable-rate mortgages.

Indianapolis-based Banc One Mortgage Corp. has loan offices in Maryland, Virginia, Texas, Ohio, Indiana, Kentucky, and Wisconsin, and buys mortgages from lenders in other states, according to a spokesman. The firm has an adjustable-rate loan portfolio of about $1 billion.

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