House Votes To Halt Suits Over Errors In Mostgages

WASHINGTON - Easing widespread fears among bankers, the House of Representatives voted Tuesday to place a moratorium on class actions seeking large penalties against lenders for technical violations of the Truth-in-Lending law.

Such suits have proliferated in the wake of last year's "Rodash" court ruling, which held that homeowners may cancel their mortgages - and get back the interest and fees they have paid - if even minor errors are found in loan documents.

Bankers say the suits could mean huge costs for the industry unless Congress overturns the court ruling, which came from a federal appeals court in Florida.

"There are hundreds of billions of dollars of refinancings that could be subject to Rodash-type decisions," said Michael J. Ferrell, chief lobbyist for the Mortgage Bankers Association of America.

The House passed a bill that would halt these class actions for six months.

The legislation, which could be taken up by the Senate later in the week and forwarded to the President's desk soon after, is viewed by lawmakers and mortgage lenders as a stop-gap measure that gives Congress time to sort out the Rodash decision.

The Rodash case centered on how two charges totaling $226 were recorded in mortgage documents. They were listed as "amount financed" instead of "finance charge."

In the class-action suits that have been filed based on Rodash, lenders fear they may be obligated to refund interest and fees if the borrows win.

Under the bill approved Tuesday, all class action certifications between the date of enactment and Oct. 1, 1995, that pertain to disclosure errors made by lenders in mortgage refinancings would be frozen. A class action is "certified" when a court decides that a complaint applies to a number of people in similar situations.

"This is a good temporary fix," Rep. Bruce F. Vento, D-Minn., said in a prepared floor statement. "It will put on hold the suits that are pressing on the various players in the mortgage industry."

The legislation was hurriedly put together to take advantage of the last chance before spring recess to move it to the House floor under "suspension of the rules," an expedited procedure reserved for noncontroversial measures.

Mr. Ferrell said it was critical for Congress to move quickly on the moratorium.

"The suits are progressing and they are adding names every day," he said of the class actions that have been filed. "Some of these cases are about to be certified and hearings could be held."

Rep. Bill McCollum, R-Fla., has introduced a broader bill that would make it more difficult for borrowers to back out of mortgage contracts. One area in that measure that has been a sticking point is how to determine the level at which disclosure errors are deemed "material." The bill proposes to change the current flat $10 limit prescribed by Truth-in-Lending to any amount that would increase the annual rate by more than 0.125% Some lawmakers have found this change to be too lenient.

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