Attorney General Hardy Myers today announced Oregon's participation in a landmark settlement with mortgage lender Household International, Inc. in which the mortgage giant agrees to change its lending practices and pay up to $484 million to borrowers nationally. The multi-state action taken today could bring more than $7 million in restitution to Oregonians for Household's alleged unfair and deceptive lending practices.
"This monumental agreement represents not only the largest amount of restitution ever paid by a lender. The changes the agreement requires in Household's lending practices will become the industry standard," Myers said. "We suspect that the practices identified in this case are not unique to Household, but may represent the current practices of many lenders that make mortgage loans. This settlement should be a powerful warning to those in the industry that operate in the same manner."
The settlement agreement reached today is between the Attorneys General of 44 states and the District of Columbia, state financial regulators and Household International, Inc. and subsidiaries. In Oregon, Household International, Inc. operates as Household Finance Corporation, Household Realty Corporation and Beneficial Finance Corporation.
The multi-state investigation results in allegations that Household violated federal laws such the Home Owner Equity Protection Act (HOEPA) and Truth in Lending Act (TILA), and Oregon laws regulating mortgage lenders, by misrepresenting loan terms and failing to disclose material information to borrowers. Borrowers complained that Household charged far higher interest rates than promised, charged costly prepayment penalties, or was deceptive concerning insurance policies. The States also alleged that some consumers were trapped in costly loans.
Attorney General Myers said Household cooperated in the case when the States presented their concerns and that the company worked quickly with the multi-state group to develop and negotiate solutions to the identified practices.
Under the settlement, Oregon consumers could receive more than $7 million in total restitution. Approximately 5,000 Oregon consumers took out real estate loans with Household since 1999, the year the states allege the problem practices began. Household also will pay the Oregon Department of Justice $100,000 for fees and costs associated with the settlement.
Primary investigative work upon which the case was based was done by the financial regulatory departments and Attorneys General of Washington, New York and Minnesota. Attorney General Myers said the settlement resulted from a "crucial and unique partnership between state financial regulators and state attorneys' general offices."
The Department of Justice consumer protection staff has coordinated with Oregon's Division of Finance and Corporate Securities in working with regulators from other states to identify patterns of complaints from borrowers.
In many cases, regulators claim, Household failed to properly inform consumers of loan costs and insurance premiums. In other cases, borrowers who were led to believe they were receiving interest rates of about seven or eight percent were actually charged nearly twice that much. Borrowers also complained that they were charged costly prepayment penalties that were not clearly disclosed to them.
Under the settlement, Household agrees to:
Pay up to $484 million in restitution to Household borrowers nationwide.
Limit prepayment penalties on current and future loans to only the first two years of a loan.
Ensure that new loans actually provide a benefit to borrowers prior to making the loans.
Limit up-front points and origination fees to five percent.
Reform and improve disclosures to consumers.
Reimburse states to cover the costs of the investigations of Household's practices.
Eliminate "piggyback" second mortgages.
The details of the settlement and the process by which Oregon borrowers can apply for restitution are being finalized and will be announced at a later date. Each state will design its own restitution plan because lending practices by Household varied significantly from state to state.
State officials said the settlement specifies that the restitution fund could range from $387.5 million up to $484 million, depending on participation by states. Almost all states are expected to participate and the restitution total is anticipated to be close to the $484 million level. Each state's share of the restitution fund will be proportional to the state's percentage share of Household's total real estate loan secured dollar volume for the period of January 1, 1999 to September 30, 2002.
Consumers wanting information about the Household settlement may contact the Attorney General's consumer hotline at (503) 378-4320 (Salem area only), (503) 229-5576 (Portland area only) or toll-free at 1-877-877-9392. The Oregon Department of Justice is online at www.doj.state.or.us.
Jan Margosian, (503) 947-4333 (media line only) firstname.lastname@example.org