State residents may get payment

Mortgage company to repay $60 million for deceptive methods

March 23, 2002|By Andrea K. Walker | Andrea K. Walker,SUN STAFF

Nearly 500 poor and elderly Marylanders could share in a $60 million settlement that the federal government reached with a California home mortgage company accused of deceptively charging clients exorbitant fees and interest rates.

First Alliance Mortgage Corp., in an agreement with the Federal Trade Commission, said it will repay nearly 18,000 borrowers from 18 states and the District of Columbia who obtained loans from Jan. 1, 1992, through Mar. 23, 2000, when the company filed for bankruptcy.

During that period, First Alliance approved 514 loans to 472 borrowers in Maryland. Nearly 100 of those borrowers lived in the Baltimore area. FTC officials said yesterday that the average compensation for victims will be $2,500 to $3,500.

First Alliance admitted no wrongdoing. The settlement is subject to approval by a federal court in Santa Ana, Calif.

The agreement with First Alliance is the largest case involving predatory lending that has ever been settled by the FTC, said Joel Winston, associate director for financial practices with the commission's Bureau of Consumer Protection.

The AARP, six states and lawyers representing individuals and class-action groups had also filed lawsuits against the company and helped the FTC propose a settlement.

"It's a sign that the federal government, along with the states and other groups, will work in a coordinated way to combat lending fraud because of the potential harm to consumers," Winston said.

The lawsuits alleged that the mortgage company targeted elderly people who had considerable home equity but needed money to repay other debts. First Alliance is also accused of charging customers fees that amounted to 10 percent to 25 percent of their loans.

In other cases, customers claimed that First Alliance had given them adjustable-rate mortgages without telling them. Many of the plaintiffs said they didn't find out until they received exorbitant bills months later.

Under the proposed agreement, the borrowers would be paid from assets in First Alliance's bankruptcy estate. First Alliance executive Brian Chisick and his wife, Sarah, who served on the board of directors, were ordered to pay $20 million from their personal funds. An additional $4 million will come from insurance policies.

Jerry Hager, a First Alliance vice president, and Ronald Rus, a lawyer for Brian Chisick, said they were pleased to have resolved the case.

FCC officials said it could take several months for the court to review the case. Advocates for fair housing and the elderly said they hope the settlement helps curb unfair lending practices.

"Predatory lending has been an explosive problem in the last decade," said Stuart Cohen, managing attorney for the AARP. "We hope this settlement sends a message both to the financial institutions that have provided funding for these types of practices, to the people directly engaged in predatory lending, that there is a collective effort [not] to allow these practices to occur without being challenged."

The Associated Press contributed to this article.

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