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Bankers Group Says Claims of Mortgage Overcharges Are Exaggerated

June 7, 1991

CHICAGO (AP) _ A bankers group concedes that there may be overcharges with adjustable-rate home mortgages, but dismisses as exaggeration a claim that annual overcharges have amounted to up to $10 billion over the past 12 years.

John Geddes - part-owner of Consumer Loan Advocates, a mortgage analysis company, and a former regulator for the Federal Savings and Loan Insurance Corp, said 35 percent of the 30 million adjustable-rate home loans were miscalculated and that borrowers have been overcharged $8 billion to $10 billion since 1979.

American Bankers Association spokesman Mark Burneko questioned the Geddes’ nationwide figures.

″We have not seen anything that even remotely resembles that kind of figure,″ said ABA spokesman Mark Burneko. ″Industry-wide, we’re processing millions of these transactions. They’re very scrupulously maintained.″

Geddes made the estimate at a news conference called Thursday to announce that a CLA client, Shimon D. Israel, filed suit in Circuit Court in St. Louis, seeking $15,000 in damages from Citicorp Mortgage Inc. He contends his mortgage was wrongly calculated.

Citicorp spokesman Tom Goyda said the company would not comment on pending litigation. The company, a St. Louis subsidiary of Citibank NA of New York, had not been served with the suit by Thursday afternoon, he said.

CLA has reviewed 8,000 mortgages and found errors in about one-third of them; the overpayment averaged $1,500, Geddes said.

At least eight other lawsuits are pending nationwide and three others are being prepared, said M. Scott Barrett, an Indiana attorney representing Israel and clients in all of the cases.

An adjustable-rate mortgage, or ARM, has an interest rate that fluctuates according to a financial index, such as the rise or fall of Treasury bill yeilds. A borrower also will pay a margin, typically 2 to 2.5 percentage points, above the index.

ARMs have limits on the total amount of fluctuation in a given time. The mortgages are attractive during periods of high interest rates because the flexible rate offers savings over the standard fixed-rate mortgage.

CLA has found errors in computing the index value in 75 percent of the mortgages it has reviewed. Errors in rounding the interest rate appeared in 50 percent of the loans and incorrect rate change dates appeared in 25 percent, Geddes said.

Other problems included using incorrect calculation methods and exceeding limits on how much the interest rate could change.

″The only way to prevent this is to make notes more standardized, but that will never happen,″ said Geddes’ partner, Lawrence Powers. ″The way that banks and savings and loans have been able to distinguish themselves is creativity.″

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