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$16 Million settelement in NC & SC against abusive lende

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Jan 15, 2002
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Certified Residential Appraiser
North Carolina
Posted on Tue, Dec. 17, 2002

$16 million settlement with lender approved
Agreement reached between Carolinas, Household International Inc.
Raleigh Bureau

RALEIGH - The Carolinas approved settlements Monday that will return some $16 million to mortgage holders who complained they were charged excessive fees and misled about terms of their loan.

In the nationwide settlement, lender Household International Inc. promised to scrutinize how its mortgage brokers sell loans and to send "secret shoppers" into branches to hear the actual sales pitch.

The Prospect Heights, Ill.-based company also pledged to limit prepayment penalties on home loans to the first two years, limit points and origination fees to 5 percent and improve disclosures to consumers.

The biggest U.S. lender to homeowners with histories of unpaid bills announced a preliminary agreement in October.

"I think you're seeing the beginning of the entire industry shifting its practices," N.C. Attorney General Roy Cooper, who helped negotiate the settlement, said Monday. "I think we're sending a clear message we're not going to tolerate an abuse of lending practices."

The states' approval clears the way for the Carolinas to start giving out the money. North Carolina's share, about $10.8 million will go to about 7,500 borrowers who took out loans between 1999 and 2002. S.C. officials had estimated 3,800 borrowers could share about $5million the state received.

Both states are drawing up a plan to distribute the money and N.C. officials hope to be able to provide refunds by the middle of 2003, Cooper said.

Household and other sub-prime lenders, which cater to people with troubled credit, charged consumers as much as 12 percent and 18 percent for home loans.

The states alleged the company told consumers they were getting lower rates, hid some additional fees it charged and did not disclose some of the prepayment penalties it charged borrowers. Borrowers also were charged for expensive credit insurance premiums without their consent, the states said.

The record settlement of $484 million was approved by all 50 states, attorneys general said.

Household said it "would have substantive meritorious legal defenses" if the states' allegations had gone to court, according to an October company filing with the Securities and Exchange Commission. The company chose to settle "in recognition that resulting litigation and/or regulatory proceedings would be protracted and that the outcome of such dispute is uncertain."

The settlement is more than double the $215 million Citigroup Inc. agreed to pay in September to settle deceptive lending allegations by the Federal Trade Commission.

Household now is being bought by HSBC Holdings Plc for $15.5 billion. The settlements completion helps clear the way for the takeover by Britain's biggest bank, some investors said.

Household needs the backing of HSBC, whose credit ratings are two notches higher, to lower borrowing costs that have soared amid accusations of deceptive lending practices.

Household shares, down 51 percent this year, rose $1 to $28.55 Monday.

Stella Adams, executive director of the N.C. Fair Housing Center, said the settlement should teach borrowers to avoid the sub-prime market entirely. Instead, they should get free counseling to help fix their credit and push harder to get loans from primary lenders, such as banks and credit unions, she said.

"Too many borrowers, particularly African American borrowers with higher incomes, are going to the sub-prime market first," said Adams.

He noted borrowers should stay away from telephone solicitations or companies that offer unsolicited loan information in the mail. "Money doesn't come searching for you. And if it does, it's money that will lead you to trouble." -- BLOOMBERG NEWS CONTRIBUTED TO THIS ARTICLE.

-- SHARIF DURHAMS: (704) 358-5942; [email protected]
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