GMAC Mortgage, the nation's fourth-largest mortgage lender, agreed Monday to refund homeowners at least $50 million to settle a lawsuit brought by attorneys general in California and 11 other states over inflated impound account payments.
The settlement was the first to result from a two-year investigation into the way mortgage companies handle impound accounts.
Impound accounts are maintained by lenders to collect funds for property taxes and insurance premiums. They are usually required of home buyers whose down payment is less than 20% of the purchase price.
The attorneys general said refunds or payment reductions totaling $100 million would go to 380,000 homeowners nationwide, including 45,500 in California. Deputy California Atty. Gen. Al Sheldon said the sum represented the amount homeowners would save over the term of their mortgages. It would translate to a savings of $100 to $350 for each California homeowner with a GMAC impound account.
However, most Californians would actually receive much less because most of the savings will come from reduced future payment into the accounts rather than refunds. A spokesman for GMAC Mortgage estimated that homeowners nationwide would receive no more than $50 million. The settlement gives GMAC one year to calculate and pay refunds.
GMAC Mortgage was sued in December, 1990, after the attorneys general investigated payment practices in the mortgage industry. The group said GMAC's method of calculating payments was typical of mortgage servicers. Indeed, GMAC has maintained that it did not break the law and was merely following industry practice.
It wasn't clear whether other mortgage lenders, none of whom has been sued, would follow GMAC's lead and change the way they determine the payments, known outside California as escrow payments.
The Mortgage Bankers Assn., a Washington-based industry group, said "it will take some time to assess" the complicated 124-page settlement. The group added, "It is important to note that GMAC has reached an agreement on its own escrow procedures and not on behalf of the industry."
Other mortgage services previously criticized by the attorneys general for allegedly overcharging consumers--Citibank, Fleet Mortgage and Lomas Financial--had no comment Monday. The attorneys general said their investigation into impound accounts was continuing.
"This is an area we've been interested in for some time, and I don't think our interest is over in this area," Sheldon said.
