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MORTGAGE CUSTOMERS IN PENNSYLVANIA DUE $13 MILLION IN REFUNDS FROM GMAC

MORTGAGE CUSTOMERS IN PENNSYLVANIA DUE $13 MILLION IN REFUNDS FROM GMAC
 HARRISBURG, Pa., Jan. 27 /PRNewswire/ -- Attorney General Ernie Preate Jr. says 49,000 Pennsylvania homeowners will get refunds totaling about $13 million under a proposed settlement of a multi-state suit against GMAC Mortgage Corp.
 "This agreement will put cash back in the pockets of home-owning Pennsylvania families who have been forced to carry excessive balances in their mortgage escrow accounts," Preate said.
 The agreement, valued at $100 million nationally, would settle a suit filed against GMAC in 1990 by Preate and 11 other attorneys general. The suit charged GMAC with requiring its mortgage customers to pay too much money into escrow accounts.
 Preate took the opportunity to announce his support of proposed federal legislation aimed at ensuring that the mortgage industry calculates and administers mortgage accounts fairly.
 The states' lawsuit charged GMAC with overcharging the escrow accounts of its 400,000 mortgage holders nationwide in violation of the federal Real Estate Settlement Procedures Act (RESPA).
 Preate said most mortgage companies, including GMAC, require homeowners to maintain an escrow account to ensure that their real estate taxes and insurance premiums are paid in full when they are due. Homeowners pay the fees each month along with their principal and interest payments, he said.
 "RESPA was passed by Congress in 1974 in response to complaints that mortgage companies were collecting excess escrow payments from homeowners," Preate said.
 He said RESPA requires that at least once during the year, the amount of money held in the mortgage escrow accounts must fall to an amount no greater than one-sixth -- or two months' worth -- of the anticipated total annual payments for all of the escrow items. The ceiling is known as the RESPA "cushion limit."
 Preate noted that many homeowners' mortgage contracts impose further restrictions on the size of required escrow payments.
 "Extra money held in escrow accounts hurts consumers but is a bonanza for lenders, who pay a low rate of interest or nothing for use of the funds," the Attorney General said.
 "While GMAC was lending money to working Pennsylvanians at the full market rate, it was forcing its customers to lend money back to GMAC, interest free," said Preate.
 He said Pennsylvania law does not require lenders to pay interest on escrow accounts, but noted that proposed federal legislation he supports would require payment of 5-1/2 percent interest on amounts held in escrow.
 The proposed agreement, which was submitted today to U.S. District Court in Manhattan for approval, requires GMAC to abide by the terms of the mortgage contract or the RESPA cushion limit in escrow accounts, whichever is less.
 GMAC denies any wrongdoing, but agrees to recalculate consumers' escrow payments under formulas specified in the agreement and, where appropriate, give consumers the option of receiving a refund check or applying the amount to future escrow payments.
 GMAC has a year to recalculate and make refunds, Preate said.
 "The amount of money returned to individual Pennsylvania consumers will depend on the type of mortgage they have and the status of their escrow balance," Preate said. "But we calculate the average refund to Pennsylvania homeowners will be between $250 and $300.
 "In these tough economic times, it's especially gratifying to be able to help so many Pennsylvanians get money back from their mortgage company."
 Preate called the agreement "a victory for GMAC mortgage holders," but noted that "illegal escrow overcharges remain a serious problem nationwide."
 Preate said he is writing to members of Congress, urging them to support the Escrow Account Reform Act of 1991 introduced by U.S. Rep. Henry B. Gonzalez (D-Texas).
 The bill is designed to tighten enforcement of escrow accounting rules and require interest payments on amounts held in escrow.
 "The fact that virtually all of the nation's lenders and servicers are engaging in the same practices that prompted the GMAC suit and settlement makes a comprehensive solution at the federal level the most appropriate way to solve the problems," Preate said.
 "The state attorneys general, even working cooperatively, lack the resources to correct all the widespread abuses occurring in this area."
 In addition to Pennsylvania, the GMAC agreement was signed by California, Connecticut, Florida, Idaho, Iowa, Massachusetts, Minnesota, New Jersey, New York, Texas and Wisconsin.
 Preate said consumers who want more information on how the settlement many affect their escrow accounts can call the Attorney General's "Consumer Protection Hotline," toll-free, at 1-800-441-2555.
 Pennsylvania was represented in the settlement negotiations by Deputy Attorney General Daniel Clearfield, chief of Preate's Public Protection Division.
 /delval/
 -0- 1/27/92
 /CONTACT: Jack J. Lewis of the Office of Attorney General, 717-787-5211, or at home, 717-657-9840/ CO: Office of Attorney General; GMAC Mortgage Corp. ST: Pennsylvania IN: REA SU:


JS -- PH015 -- 3695 01/27/92 11:31 EST
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Date:Jan 27, 1992
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