Newspaper article THE JOURNAL RECORD

Up to 1 of 4 Homeowners Receives Faulty Billings on Adjustable Mortgages

Newspaper article THE JOURNAL RECORD

Up to 1 of 4 Homeowners Receives Faulty Billings on Adjustable Mortgages

Article excerpt


By Iver Peterson As many as one of every four Americans who bought homes with adjustable-rate mortgages may be receiving incorrect billings each month because of bank errors in calculating their interest rates, according to a report by the General Acounting Office. Some people are paying too much while others are paying too little.

The miscalculations were discovered in routine audits of mortgages issued by failed savings and loan associations that have been taken over by federal regulators. But bankers concede that some adjustable loans, which have complex terms, are also being incorrectly adjusted by solvent institutions.

The extent of the problem is disputed. John Geddes, a former federal mortgage banking auditor who has been the chief whistle blower on the errors, estimates that 30 percent to 35 percent of the country's 12 million outstanding adjustable-rate mortgages, which include home equity loans, are billed incorrectly, with half the borrowers charged too much and the rest too little.

He says the net overcharges are about $8 billion, but says he has not estimated the undercharges. It is also unknown how many of these loans have already been paid off. Geddes' estimate is based on his review of 7,000 adjustable mortgages taken over by the government in the savings bailout.

Experts cited in an October report of the accounting office, the investigative arm of Congress, put the error rate at 20 percent to 25 percent of these mortgages, but some banking industry officials contend that the rate is considerably less than that. Chase, for instance, audited its adjustable mortgages last year and found almost no errors.

The size of the errors varies, with most considered to be small. But Shirley and Gordon Wynn of Miami received a $1,463.99 refund from the Coral Gables Federal Savings and Loan in September after pointing out to the bank that charges on their adjustable home mortgage since 1987 had been based on an interest rate of 10.875 percent instead of the correct rate of 10.375 percent. The Wynns' monthly mortgage payment is now $797.75, instead of $812.34.

It is unclear whether financial institutions are liable for making refunds to overcharged borrowers, although the first lawsuits challenging lenders on the issue are now being brought by borrowers.

But a major concern to members of Congress who are beginning to look into the problem is the additional cost of the federal savings and loan bailout to taxpayers if such refunds have to be made.

The federal regulators' role in the problem is also expected to be discussed at congressional hearings to be held on the miscalculations. …

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