Fleet Mortgage Group Inc., one of the nation's largest mortgage lenders, agreed to pay $150 million in refunds yesterday to homeowners allegedly overcharged on their mortgage escrow accounts, including about $3.5 million to Marylanders.
The company, based in Columbia, S.C., also said it would change the way escrow accounts were calculated by two of its subsidiaries, Fleet Mortgage Corp. in Milwaukee and Fleet Real Estate Funding Corp. in Columbia, S.C.
The agreement followed a one-year investigation into Fleet's practices by the attorneys general of 26 states, including Maryland. A year ago, the attorneys general reached a similar agreement with GMAC Mortgage Corp. that initially cost the company $100 million in refunds to homeowners.
"It would not surprise us if there were a number of other institutions in the industry doing the same thing," Maryland Attorney General J. Joseph Curran Jr. said yesterday.
Fleet, which does business in 37 states, was accused of reserving too much of its mortgage customers' money each month and keeping the interest earned on that money that otherwise would have gone to the homeowner.
Under the settlement agreement, in which Fleet admitted no wrongdoing, Fleet said it would change the way it calculated escrow payments and would notify homeowners who were due a refund. About 1 million homeowners nationwide were expected to benefit from the settlement, including 24,344 people in Maryland. The average refund would be $146, the attorneys general said.
Most mortgage companies require the homeowner to forward a monthly payment -- in addition to principal and interest on the mortgage -- to cover at least a one-month share of the annual property taxes, homeowners' insurance premiums and other costs, such as ground rent.
Many companies also ask for more than a one-month share, and keep the excess amount reserved as a "cushion" in case a homeowner fails to come up with the money to pay the insurance premiums or the taxes.
A 1975 federal law, the Real Estate Settlement Procedures Act (RESPA), prohibits companies from holding in their escrow accounts more than two months' worth of cushion for any homeowner. But many individual mortgage contracts say nothing about an escrow cushion, Mr. Curran pointed out.
"Apparently, a number of companies are saying that since the federal law authorizes two months' cushion, we'll just add on two months," even if homeowners are not required to pay the extra money under their mortgage contracts, Mr. Curran explained.
John Nethercut, an assistant attorney general in Maryland who worked on the case, acknowledged that the interest lost to each homeowner was relatively small, and because the formulas are complex, "it's the kind of fraud that is not going to be perceived by the consumers."
Customers with questions about possible refunds may call Fleet Mortgage Corp., at (800) 272-7075, or Fleet Real Estate Funding Corp., at (800) 544-5891.