Homeowner Rip-Offs Spark Scores of Lawsuits

March 12, 2009

By Adrianne Appel

BOSTON, Mar 11 (IPS) - Many of the biggest mortgage lenders in the U.S. have engaged in widespread, systematic schemes that ripped off hundreds of thousands of families seeking to buy a home, refinance or foreclose, according to lawsuits filed on behalf of consumers.

Scores of class-action lawsuits, from the 1990s and up to today, detail the illegal and questionable practices used by mortgage-lending companies that pushed millions into bad mortgages, then into bad refinancing loans and then into foreclosures with unfair fees.

The lawsuits have been filed by private attorneys and state attorneys general, and on behalf of NGOs.

Ameriquest, Countrywide Financial, H&R Block and Option One, HSBC Finance and Wells Fargo are just a few of the companies that have been sued - some repeatedly - for masterminding or carrying out plans to defraud families.

"Many of the mortgage lenders taking advantage of people today are those who were the biggest perpetrators last time around," Jim Campen, executive director of Americans for Fairness in Lending, told IPS.

HSBC, Britain's largest bank, and its entities Household International and Household Financial and Beneficial, wrote hundreds of thousands of sub-prime loans in the U.S. that have been the subject of multiple class-action lawsuits.

The company has gotten into trouble for its mortgages and consolidation loans aimed at people who are low-income.

It was sued in 2002 by attorneys general and paid 484 million dollars into a fund for harmed homeowners in all 50 states. It later settled with ACORN, and later with private attorneys. Complaints against the company are ongoing, according to Fair Finance Watch, an NGO.

Last week HSBC, which operates in Canada and recently expanded to India and Brazil, announced it planned to shut down its mortgage-related business in the U.S. due to a high rate of delinquency on its mortgages. It will lay off 6,100 U.S. workers.

According to a lawsuit filed in Illinois, HSBC found customers by scanning lists of people who held mortgages and also had high credit card balances with K-Mart, Best Buy, Costco and other retailers affiliated with HSBC that provided the lists.

After aggressive mailings and phone calls, HSBC would "trick" the homeowners into providing their Social Security numbers, which allowed HSBC to gain access to their complete credit histories, and use the information to talk people into high-interest consolidation loans, the suit says.

The loan amounts were so high - and with interest up to 20 percent - that they often far exceeded the value of the homes, and made it impossible for the family to ever refinance with a competitor, according to the lawsuit.

HSBC settled that lawsuit, denying any wrongdoing. It has since been sued by ACORN, the grassroots organisation, and others.

HSBC has plenty of company.

"There are dozens and dozens of cases against Countrywide," class-action attorney Jeffrey Norton told IPS. He is suing Countrywide on behalf of thousands of plaintiffs who are being charged unfounded fees during loan modifications and foreclosure.

"When someone gets a loan modification agreement, there is one line that says 'fees.' It can be anywhere from hundreds to thousands of dollars. No one can get answers as to what the fees are comprised of," Norton said.

After receiving many complaints, the National Association for the Advancement of Coloured People (NAACP) filed suit against HSBC, Countrywide and 17 other big-name lenders in 2007, for charging higher mortgage interest rates to people of colour.

The suit, still underway, may help correct the "egregious, demoralising practices that too often turn the so-called American dream of homeownership into a nightmare," said NAACP chairman Julian Bond.

Named in the suit are: Ameriquest, Accredited Home Lenders, Bear Sterns, BNC Mortgage, CitiMortgage, Encore Credit, Fremont Investment & Loan, First Horizon, First Franklin Financial, GMAC, JP Morgan, Long Beach Mortgage Company, National City, Option One, Suntrust Mortgage, Washington Mutual, Inc. and WMC Mortgage Corporation.

"If Congress did a better job this could have been prevented," Odette Williamson, staff attorney at the National Consumer Law Centre, told IPS about predatory lending. Housing advocates first noticed an escalation of discrimination and abuse in mortgage lending in the 1990s and brought their concerns to Congress.

"We hope that with the folks in there now that they realise the importance of getting stronger protection for consumers on the books, so we can prevent the next round of predatory lending," Williamson said.

ACORN said it backs President Barack Obama's foreclosure prevention plan.

"President Obama hit a home run with his proposal," said Bertha Lewis, ACORN CEO. She said, however, homeowners need immediate protection from foreclosure and predatory lenders.

Cash-strapped attorney generals offices across the U.S. have devoted significant time and money to suing large lending corporations and trying to stop the abuses.

"It is a main priority for attorney generals," Amie Breton, spokeswoman for the Massachusetts attorney general, told IPS.

Attorney generals recently won a 325-million-dollar settlement against Ameriquest, which writes the most sub-prime loans in the U.S., due to nationwide, predatory lending.

"The abuses were systemic in nature and number - tens of thousands of victims nationwide - and the damage was catastrophic in real life, human terms," said Connecticut Attorney General Richard Blumenthal.

"Consumers lost their homes because they could not afford interest rates on loans after Ameriquest fabricated income and inflated appraisals and trapped them with inadequately disclosed pre-payment penalties," Blumenthal said.

Ameriquest routinely fabricated consumers' income by claiming that recipients had phony "sewing" or "lawn" businesses. The company even claimed that an elderly Connecticut woman had a sewing business, even though she was blind, according to the Connecticut attorney general's office.

A suit underway by the attorney general in Massachusetts says that H&R Block and its affiliate Option One charged closing costs to black and Latino mortgage customers that were up to four times those charged to whites, on top of a mortgage with high interest.

"We are alleging that H&R Block had people going to places of worship in certain neighbourhoods trying to get black and Latino borrowers into these loans," Breton said.

If a family fell behind in its payments of the high-interest mortgage, H&R Block affiliate Option One called them and threatened immediate foreclosure, unless full back payment and substantial fees were paid within 48 hours, the suit says.

No receipt or documentation was sent to the distressed families who made the back payments, the suit says.

Then, new loan terms were drawn up by Option One that were more onerous than the original mortgage, such as placing the home in foreclosure if for the life of the new loan the family was late in paying by just one day.

"Top to bottom these loans were destined to fail," Breton said.

The Massachusetts attorney general has issued a temporary injunction against H&R Block, preventing it from foreclosing on any homes.