Magazine article American Banker

First Nationwide Is Sued on 'Teaser' Mortgage Rate; Consumers Union Sees an Intent to Deceive

Magazine article American Banker

First Nationwide Is Sued on 'Teaser' Mortgage Rate; Consumers Union Sees an Intent to Deceive

Article excerpt

SAN FRANCISCO -- Accusing First Nationwide Bank of price-gouging and deception, a consumer group has sued the San Francisco-based thrift, asking for a court order to halt allegedly misleading disclosures about teaser rates for adjustable mortgages.

Consumers Union claimed in its lawsuit that First Nationwide had failed to apply lower teaser rates for the full six months promised in brochures and sales pitches.

The group, which publishes the magazine Consumer Reports, sought a court order forcing the bank to stop charging higher-than-advertised rates and to return the interest differential to all affected First Nationwide mortgage holders.

In an angry rebuttal, the thrift, a unit of Ford Motor Co., called the suit a publicity stunt. Consumers Union's assertions are "totally without merit," it said.

"We provide a detailed disclosure in the application process," said Stephen L. Johnson, a First Nationwide spokesman. "We have a real problem with the claim that this is a deliberate ploy to gouge people."

He said First Nationwide will fight the suit and does not plan to change its mortgage procedures.

Waiting for Six Payments

At issue is First Nationwide's practice of moving from the teaser rate to a higher rate after six payments have been made.

Unless the mortgage closes at the beginning of a month, the special rate would be in effect for less than six months. On average, the higher rate takes effect about two weeks earlier than a full six months. …

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