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Dime Savings Bank Reaches Agreement With Troubled Borrowers

March 7, 1996

CONCORD, N.H. (AP) _ Dime Savings Bank of New York, whose mortgage lending practices have been questioned, has agreed to add $7 million to a fund to help troubled New England borrowers.

Dime also said it would rewrite some of its problem loans, help borrowers behind on payments by halting foreclosure and forgive a portion of unpaid interest and late fees in some cases. Of the $7 million it is providing, $3 million is for New Hampshire borrowers and $4 million for Massachusetts.

The thrift announced the agreement Wednesday with the Dime Borrowers Associations of New Hampshire and Massachusetts.

``Although I have not hesitated to be critical of Dime in the past, this agreement reflects our ability to work together,″ said Ed Kobylis, president of the Dime Borrowers Association of New Hampshire. The savings bank has not had mortgage lending operations in the state for nearly a decade.

Most of the problems arose from a practice known as ``negative amortization,″ which occurs when loan payments are insufficient to pay the interest due. As a result, the unpaid interest is added to the outstanding loan balance and the principal rises, instead of falls, as payments are made.

Negative amortization can result when a bank offers a graduated payment mortgage that starts out with low initial payments. It also can occur when there is an adjustable rate mortgage with an annual cap that limits how much interest rates can be raised.

Borrowers blamed Dime’s aggressive sales tactics and the mortgage loans’ negative amortization feature for putting unqualified buyers into homes they could not afford.

Dime sold nearly 1,500 loans in New Hampshire and more than 10,000 in New England in the late 1980s. About one-third ended in foreclosure.

New Hampshire borrowers took the savings bank to court claiming the negative amortization feature was illegal. The case was dismissed by a New Hampshire judge, but a federal appeals court in Boston ruled in January that borrowers could pursue the case.

The new agreement does not affect that case, Kobylis said.

Nine former employees of Dime Real Estate Services of New Hampshire Inc. _ responsible for 96 percent of Dime’s business in the state _ have been indicted on bank fraud charges for coaching borrowers to lie on mortgage applications.

Six former Dime Real Estate Services of Massachusetts employees have been indicted on similar charges.

Under the new agreement, borrowers who lied on mortgage applications could qualify for help at the discretion of the bank, said David Totaro, executive vice president of Dime.

``Our goal is to increase borrower participation by expanding the program and by working with the Dime Borrowers Associations,″ he said.

Dime will give borrowers associations in both states $75,000 grants to set up programs to help borrowers, he said.

The savings bank made a similar pact with New Hampshire, Massachusetts and Connecticut officials in 1994 when the states agreed to halt investigations into Dime’s lending practices.

Those agreements, however, excluded borrowers who took out second mortgages to finance down payments _ a practice Dime says it did not allow.

``This agreement is a very good adjustment to the state agreement,″ said Assistant Attorney General Walter Maroney, head of the New Hampshire Consumer Protection and Anti Trust Bureau. ``It means an agreement that we think was pretty good in the first place will be offered to even more people.″

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