Bank Fraud Victims

Homeowners Gain

AARP Bulletin

A record $60 million lawsuit settlement has added new momentum to AARP's campaign to protect homeowners from losing their homes to unscrupulous mortgage lenders.

The settlement with the First Alliance Mortgage Co., the largest of its kind ever negotiated by the Federal Trade Commission (FTC), ends a four-year legal battle by AARP and others, later joined by the FTC and several state attorneys general.


Borrowers Beware


AARP warns homeowners to be cautious if any potential lender:

• Says, "Poor credit? No problem!"
• Offers a "bargain loan."
• Rushes you to sign that day.
• Asks you to pay a fee "up front."
• Offers a loan with small monthly payments that "balloon" into a large, final payment that you can't make.

For AARP's free "Borrowing Guide to Home Loans" booklet, write to AARP Fulfillment EE01524, 601 E St. NW, Washington, DC 20049. Ask for number D17381 (English) or D17447 (Spanish).

The settlement, awaiting approval by a federal court, is expected to return $2,500 to $3,300 each to 18,000 First Alliance borrowers in 18 states and the District of Columbia.

"Older people are major targets of predatory lenders," said AARP Executive Director Bill Novelli, "in part because nearly 80 percent of people 50 and over own their own homes… . We've heard many of them say, 'They didn't tell me I could lose my home.' "

AARP filed suit against the Irvine, Calif., firm in California in 1998 after receiving complaints from older consumers across the country about the company's practices. It alleged that First Alliance used high-pressure sales tactics and deceptive claims to push homeowners into new mortgage loans that cost them excessive fees—and sometimes their homes.

At a March news conference announcing the settlement, FTC Chairman Timothy J. Muris said First Alliance charged loan origination fees amounting to 10 to 25 percent of the total loan amount. Most mortgage lenders charge 2 percent.

He also charged that the company misrepresented its adjustable-rate loans, increasing rates 1 percent every six months for two or three years instead of adjusting them up or down based on market changes.

Under the terms of the settlement, First Alliance and its founders agreed to the payments but denied any wrongdoing.

Predatory lending, which AARP lawyers say has been exploding in the last decade, lures people into loans they really can't afford, usually by borrowing against the equity in their homes. The loans are often characterized as an easy way to consolidate debts.

Once a federal court in California approves the First Alliance settlement, it will establish the amount of payments and how they will be made. Affected borrowers will be notified by mail.

Novelli said that AARP will continue to press for tougher laws on predatory lending and step up efforts to alert consumers to shady practices.

AARP recently helped pass strong new lending laws in North Carolina and California and is pushing for similar protections in more than 20 other states. AARP attorneys currently represent homeowners in suits against mortgage lenders in New York, Washington, D.C., West Virginia and other places.

For copies of the settlement, go to the FTC website at; write to the FTC Consumer Response Center, Rm. 130, 600 Pennsylvania Ave. NW, Washington, DC 20580; or call toll-free (877) 862-0886.


Find out if you are a victim of predatory lending practices:



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