SEATTLE - The checks are in the mail today for 10,419 Washington consumers who were overcharged for home loans by Household International.
This settlement provides the largest direct consumer restitution ever in a state or federal case. Consumers nationwide will receive up to $484 million in restitution for predatory lending practices, including about $21 million for Washington victims.
"Household International killed the American dream of home ownership for thousands of unsuspecting consumers by saddling them with crushing mortgage debt," said Attorney General Christine Gregoire. "We trust this settlement with Household/Beneficial will set an ethical example for other lenders to follow."
Under the settlement, payments to Household customers will range from $17.47 to $28,354.56. The average payment is $2,051.20 and the median amount is $1,071.47.
Eighty-five percent of eligible Washington borrowers elected to participate in the settlement by returning signed release forms to the settlement administrator. The participation rate was one of the highest in the country and Gregoire attributed it to an extensive effort to educate consumers.
The settlement also provides more than 20 areas of injunctive relief, meaning Household must establish new standards of conduct, including limiting prepayment penalties to two years. These provisions will help future consumers avoid problems and assist current loan holders to get out of bad loans. In addition, an independent monitor has been employed to monitor the company's compliance with the settlement for a period of five years.
"This settlement establishes new standards of conduct in a segment of the lending industry that has too often victimized homebuyers through greedy practices," Gregoire said.
The national settlement allowed each state to develop its own formula for distributing its share of the settlement funds. "We worked hard to make sure consumers who suffered the greatest harm received the greatest restitution," Gregoire said.
Consumers who elected to participate will be compensated based upon a formula that takes into account the types of harm they suffered, as well as the gravity of that harm. Washington identified five areas of harm consumers may have experienced during the lending process. These include:
- Loan-to-value ratio. Some consumers were loaned an excessive amount in relation to the value of their real estate. This caused harm by making it difficult, if not impossible, for consumers to refinance loans with other lenders that may have better rates.
- Excessive and misrepresented discount points. The discount process and options were not explained to some consumers or disclosed adequately in their Good Faith Estimate. In some cases, this resulted in consumers paying excessive discount points.
- Prepayment penalties. Some consumers were locked into loans with large and lengthy prepayment penalties. This made it difficult to refinance loans with other lenders that may have had better rates.
- EZ pay plan. Interest rates for this accelerated payment plan were misrepresented to consumers so they ended up with higher payments than they thought.
- Credit insurance packing. Consumers were sold credit insurance in a lump sum that was financed into loans. This made it difficult to drop the insurance and compare costs with other lenders.
Low-income recipients who have questions about the settlement's effect on SSI, TANF, or other public benefits programs should call CLEAR, the Northwest Justice Project's legal aid hotline at (206) 464-1519 in King County. Outside King County, call 1-888-201-1014 or 1-888-201-9737. If age 60 or older, regardless of income or county, call 1-888-387-7111.
Gregoire praised the work of staff in her office, Department of Financial Institutions and the Insurance Commissioner for their work on the case.