OLYMPIA - About 12,000 Washington consumers will soon get information about their eligibility for restitution under the state's $21.15 million settlement with Household International, a top lender in the sub-prime mortgage market.
The settlement administrator will mail information August 15 to eligible consumers who obtained real estate secured loans with the company through its retail lending subsidiaries Household Finance, Beneficial or Household Realty Corporation between January 1, 1999 and September 30, 2002.
More than 21,000 Washington borrowers secured loans from Household retail branches during that period. Over 12,000 of those borrowers held loans that subsequently were found to show evidence of misconduct or misrepresentation and are eligible for restitution.
"Our goal is to get the money back into the pockets of people who suffered from Household's actions, and do it in a way that's fair and proportionate to the amount of harm each consumer suffered," Attorney General Christine Gregoire said.
Eligible consumers will have until October 14, 2003 to join the state's settlement. Restitution payments will range from $11.39 to $25,863.76 depending on the extent they were harmed by Household's marketing and lending practices, and the size of their loan. Actual amounts may increase, depending on how many consumers choose to participate.
The state estimates that consumers who participate in the settlement will be compensated for about 25 percent of out-of-pocket overcharges from Household's misconduct.
"While this settlement cannot fully compensate the victims who were harmed, it provides them some restitution, changes Household Finance's business practices going forward, and sends a clear message to other companies involved in mortgage lending," said Helen Howell, director of the Department of Financial Institutions.
The Department of Financial Institutions began investigating Household after receiving about 180 complaints against the company. Shortly thereafter, the Attorney General's Office opened its own investigation in response to the more than 160 complaints it received.
The state's investigation showed that Household and its subsidiaries had violated provisions of the state's Consumer Protection Act, the Consumer Loan Act, and the Insurance Code by misrepresenting important loan terms and failing to disclose critical information to borrowers.
"Our state's investigation was key in uncovering the abusive lending practices in which Household had been engaging," Howell added.
Among its findings, the state found Household used a combination of predatory practices to lock consumers into costly home mortgage refinancing on terms that were often unsuitable to them. These included high loan fees, extended prepayment penalties, insurance "packing" (a practice of adding various insurance products and financing them over the life of the loan), and loans exceeding the value of the mortgaged property. When consumers eventually discovered the problems with their loans, these practices made it impossible for them to refinance with other lenders.
"Consumers were often victimized twice," said Insurance Commissioner Mike Kreidler.
"Not only did the packing of the insurance cause their loan payment to skyrocket, but some consumers were unaware they had even purchased insurance on their loans. We hope with this record settlement that justice is finally served."
Washington was one of nine states that led the negotiations resulting in the landmark $484 million nationwide settlement announced last October. By December, all 50 states and the District of Columbia had joined the settlement and filed consent judgments in their state courts.
The settlement money being distributed to eligible Household borrowers represents the largest direct award of consumer restitution ever. The settlement also requires significant changes in the company's lending practices that are expected to set a national standard for consumer mortgage lending. These changes include limits on the amount of loan fees and the duration of prepayment penalties, new and clearer loan disclosures, use of an independent loan closer, and the requirement that home loans must actually benefit the borrower.
"This settlement will not return all of the money families lost or compensate for the grief they suffered at the hands of lenders they trusted to finance their homes," Gregoire said. "But we hope that the new standards this settlement contains will raise the bar for all lenders to follow."
Consumers who choose not to participate in the state's settlement may take legal action on their own. Each loan is unique, so consumers must decide their best option based on their personal situation. Household borrowers may want to consult an attorney or housing counselor when making this decision.
Consumers with questions about the settlement or their eligibility should contact the Household settlement administrator toll free at 1-888-780-2156, or visit its website at http://www.household-beneficial-settlement.com.
The state also has established a temporary toll-free call center to answer consumer's questions about the settlement. The call center can be reached Monday through Friday 9 a.m. to 4 p.m. at 1-877-258-7036.
Additional information is available from the Attorney General's Office http://www.atg.wa.gov/householdfinance, the Department of Financial Institutions http://www.dfi.wa.gov, and the Office of the Insurance Commissioner www.insurance.wa.gov.