General Motors Acceptance Corp., one of the country's largest mortgage lenders, settled a federal lawsuit yesterday by agreeing to refund tens of millions of dollars to hundreds of thousands of homeowners who officials said had been forced to pay excessive amounts into escrow accounts.
The attorneys general of 12 states, including New York and California, called the settlement with GM's mortgage unit a significant victory against abuse in mortgage lending and expressed hope that it would result in reforms. Maryland was not involved in the suit.
The prosecutors maintained that the settlement would cost $100 million, with the average customer receiving $275 in refunds and reduced mortgage payments. The company disagreed and denied wrongdoing, saying it settled to avoid legal costs.
The lawsuit against GMAC's mortgage arm, the country's fourth-largest mortgage lender, was a test case by law enforcement officials, who contended that mortgage companies regularly required customers to pay more into escrow accounts than permissible under federal law.
The escrow accounts are to be used by lenders to pay real estate taxes and insurance premiums as they come due. But the attorneys general said lenders were collecting excess money to get the interest earned by investing it.
Mortgage lenders may collect more in escrow than may be needed to pay annual taxes and insurance premiums, as a cushion against unanticipated rate increases.
But the excess escrow payments may not exceed a sixth of the anticipated escrow charges, a limit broken by lenders, the attorneys general said.
A bill sponsored by Rep. Henry B. Gonzalez, D-Texas, would allow consumers to pull out of escrow accounts and pay their taxes and insurance directly after they had repaid 20 percent of the principal and interest on their loans and require lenders to pay interest of 5.25 percent on money held in escrow.