NEW YORK (AP) _ A group representing thousands of homeowners who claim Citicorp overcharged them on their adjustable rate mortgages contends the bank's offer to settle a lawsuit lets Citicorp off cheap.

Negotiations continued Thursday between Citicorp and attorneys representing some 40,000 borrowers represented in a class-action suit from St. Louis and attorneys in a separate and smaller case in a New York state court.

Consumer Loan Advocates of Lake Bluff, Ill., is opposing a settlement proposed by Citicorp in the New York case, which affects about 22,000 borrowers. Citicorp would pay $1.05 million to settle the New York case.

The group argues that under the New York settlement, borrowers would be paid ''pennies on the dollar, if that much.'' It objects to the settlement, arguing that borrowers covered in the New York suit weren't given proper notice to exclude themselves from the settlement and join the St. Louis lawsuit, which has the potential of a greater payout.

The St. Louis case was filed in June after Shimon D. Israel claimed Citicorp Mortgage Inc., a St. Louis subsidiary of the New York bank, miscalculated his adjustable rate mortgage.

Larry Powers, a partner at Consumer Loan Advocates, said the firm estimates thousands of borrowers with Citicorp adjustable rate mortgages faced overcharges similar to the Israel case. Powers estimated the overcharges total between $30 million to $50 million.

''The Citicorp lawyers now are attempting to use the (New York) suit as an attempt to supercede all cases before them,'' Powers said.

Citicorp spokesman Bill Ahearn declined to comment on the case or any pending litigation.

An adjustable rate mortgage, or ARM, has an interest rate that fluctuates according to a financial index, such as Treasury bill yields. A borrower pays 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.

The errors occur when banks or other lenders miscalculate the index, meaning borrowers' loan payments could be more - or less - than the amount stated in the loan contract.

Powers' group, which has audited 8,000 adjustable rate mortgages for possible errors, is working closely with the St. Louis attorneys in the case.