PHILADELPHIA -- Richard Gosson's monthly payments skyrocketed soon after GMAC Mortgage Corp. began servicing his loan.
The reason: GMAC kept increasing escrow payments to cover (( "shortages" in the account caused by property tax boosts.
Mr. Gosson believes he's paying too much. Monthly escrow payments have increased $116 since 1990 -- nearly 50 percent more than the rise in taxes. Over the three years including 1992, Mr. Gosson will pay $1,160 more escrow than he owes in taxes on his $200,000 home near Pittsburgh.
"It's mind-boggling. I can't substantiate the huge jump in my monthly payments," said the 57-year-old sales manager.
rTC Mr. Gosson is among thousands of homeowners who could get refunds and reduced escrow payments in the next 12 months under a court settlement reached last month.
Attorneys general in 12 states alleged in a 1990 lawsuit that GMAC "systematically violated federal law" by requiring escrow far exceeding amounts necessary to pay taxes and insurance.
They estimate overcharges could amount to $100 million on 380,000 loans nationwide serviced by GMAC.
GMAC, based Elkins Park, Pa., is the nation's fourth-largest mortgage servicer. It denies any wrongdoing and says its escrow method is used throughout the industry. It dismissed the overcharges as "grossly exaggerated."
Homeowners don't lose excess escrow payments, but they can't spend or invest them. "GMAC is stealing the time value of money -- the homeowner's right to earn interest on it," said Daniel Clearfield, Pennsylvania deputy attorney general. The state doesn't require lenders to pay interest on escrow balances.
The problem continues for most homeowners because the settlement applies only to GMAC. The Department of Housing and Urban Development, which enforces escrow limits, says the industry's accounting method is legal.
"We don't see widespread overcharging," said HUD general counsel Frank Keating. He says HUD will release in March a comprehensive study showing whether escrow balances are too high.
According to the attorneys general, GMAC was violating the Real Estate Settlement Procedures Act, which limits escrow balances a two-month cushion above that needed to pay taxes and insurance.
They say the company also ignores mortgage contracts, 95 percent of which require balances lower than RESPA's limit. About 40 percent are Fannie Mae or Freddie Mac contracts issued before May 1991, which allow no cushion. The GMAC settlement says the two-month limit applies to all escrow items combined. This method, called aggregate analysis, means the balance must fall once a year to an amount not exceeding one-sixth of taxes and insurance.
GMAC agreed to recalculate escrows during the next 12 months and refund balances exceeding the RESPA or contract limits, whichever is lower.