Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: WEDNESDAY, April 25, 1990 TAG: 9004250701
SECTION: NATIONAL/INTERNATIONAL PAGE: A/1 EDITION: EVENING
SOURCE: Associated Press
DATELINE: DES MOINES, IOWA LENGTH: Medium
"Many of the nation's mortgage lenders systematically have broken the law," says the report, compiled by attorneys general from seven states and released Tuesday.
They said the violations have been taking place for more than a decade, and they called on federal officials to tighten enforcement of laws limiting the amount lenders can set aside in escrow accounts.
"Our study concludes we need a national solution to this problem," said Iowa Attorney General Tom Miller, one of those sponsoring the report.
A spokesman for one bank cited in the study denied any wrongdoing.
Escrow accounts are kept by lending institutions to make payments for property taxes, insurance and other items that borrowers must pay.
Extra money in escrow accounts hurts consumers and is a bonanza for lenders because they get to use the money for free or pay only a very low rate of interest on it.
About two-thirds of the nation's home mortgages involve escrow accounts.
Federal law limits lenders to keeping a two-month "cushion" in escrow, or enough money to make payments for two months. The cushion allows lenders to make tax and insurance payments even if the consumer is late making a monthly payment.
The study estimates that the average amount of excess escrow could be as much as $150 for every mortgage, which would amount to several billion dollars nationwide. The report says it is routine for lenders to hold more than twice as much as the law allows in escrow accounts.
"Right now, cushions sometimes amount to three to five months of the annual tax and insurance bills and that's not fair to consumers," Miller said. "The excessive cushion can't be justified as protecting the lenders' investment. It simply gives them more of the consumers' money to earn bigger profits."
The report called on Housing and Urban Development Secretary Jack Kemp to tighten enforcement of the law.
The study was conducted by attorneys general in Iowa, California, Florida, Massachusetts, Minnesota, New York and Texas.
The two-year study focused on big lenders who operate nationwide. A survey of four of the largest - Citibank, GMAC Mortgage Corp., Fleet Mortgage Corp. and Lomas Financial Group - "indicated that lenders may be holding excessive and illegal cushions in more than 70 percent of escrow accounts."
Susan Weeks, a spokeswoman for Citicorp, parent of Citibank, said the New York-based company was "a little surprised by the announcement."
She said Citicorp has been working with New York Attorney General Robert Abrams for more than a year on the matter. "We've explained to him we're in compliance."
She said the law allows the bank to hold funds in escrow to pay for expenses on the account, and permits a two-month cushion on top of that. "If there is anything in excess of that, we automatically return it to the consumer," she said.
by CNB