Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: THURSDAY, February 18, 1993 TAG: 9302180061
SECTION: BUSINESS PAGE: B-5 EDITION: METRO
SOURCE: Associated Press
DATELINE: WASHINGTON LENGTH: Medium
ABUSES IN EQUITY LOANS SURFACE
The Senate Banking Committee heard charges Wednesday that unscrupulous finance companies are reaping excessive equity loan profits from homeowners, who sometimes wind up losing their property.Fleet Finance Inc. of Georgia, the housing finance unit of one of the nation's largest banks, was the principal focus of a hearing into what some witnesses described as a nationwide problem involving abusive home equity lending practices aimed at minorities and inner-city neighborhoods.
But a Fleet official, John P. Hamill, denied that the company targeted minorities or profited from the sale of foreclosed properties. The company said it lost $24.6 million on foreclosures last year, half of them against black homeowners.
Sen. Donald Riegle, the Banking Committee chairman, sharply criticized Fleet Finance, saying an average 15.9 percent annual rate on its loans was too high.
"I've got to tell you, that 15.9 percent . . . bothers me and it ought to bother you," Riegle told Hamill. ". . . It's very troubling to me and frankly I think it's hurting the country."
"Today, we are faced with a dual type of lending, with minorities generally being pushed to the back of the bus economically and being charged higher interest [rates] than their white counterparts - for no acceptable reasons," said John Long, an Augusta, Ga., lawyer who has investigated home equity fraud since the late 1980s.
One homeowner, 78-year-old Annie Diggs of Augusta, Ga., told the committee how a home improvement contractor convinced her to sign complex loan documents she didn't understand that left her with a $15,000 loan at 18.9 percent interest. The monthly payments ate about half of Diggs' fixed monthly income of $575.
The loan was sold by a mortgage broker to Fleet Finance, which continued to insist she make payments even though her roof continued to leak after the shoddy repairs, she said. Diggs said she went without food to make her loan payments for fear she would lose her house.
Hamill, president of Fleet Bank of Massachusetts, said Fleet's Georgia finance company admits mistakes and Diggs' loan never should have been made.
"They've gotten through because we bought loans in bulk and we didn't do a good enough job" screening out loans with excessive interest rates, said Hamill. "We've made our errors. We're not perfect."
After discovering the problem loans, Fleet Finance last fall changed its practices and offered a $38 million plan to refinance some of the high-interest loans for its borrowers and fund community development in Atlanta, Hamill said. About 700 people have had their payments reduced, he said.
Other major finance companies, including Chrysler First Inc. of Allentown, Pa., and Union Mortgage Corp. of Dallas, have been slapped with multimillion-dollar judgments by juries on similar charges.
Riegle and Sen. Alfonse D'Amato, R-N.Y., said they plan to introduce legislation to prevent the alleged abuses.