Lawsuit Says General Electric Unit Bribes Loan Brokers to Hike Rates

Another big home lender, GE Capital Mortgage Services Inc., is facing a class action over the way it pays mortgage brokers.

The specific target is GE's Rate Booster program.

The complaint alleges that GE Capital, based in Elkins Park, Pa., "bribed (mortgage) brokers to breach their statutory, contractual, and fiduciary duties to borrowers." It says GE Capital did so by paying mortgage brokers a reward for jacking up interest rates on borrowers - a payment called an overage.

"If you pay someone to subvert the contract between the agent and the principal, that's illegal," said John Roddy, a partner with Grant & Roddy, Boston. He and Daniel A. Edelman of Edelman & Combs, a Chicago firm specializing in class-action law, filed the suit against GE Capital on May 5.

A spokesman for GE Capital Mortgage said it would not comment until it had been served with the complaint.

In similar cases, Associates Corporation of America, a subsidiary of Ford Motor Co., is being sued for the way it paid mortgage brokers.

Mr. Roddy said he expects Arthur Davis et al v. GE Capital Mortgage Services Inc. to be certified as a class action within the next few months. He said he expects the class to include more than 10,000 people.

GE Capital is supposed to respond to the complaint within 20 days but will probably be granted extra time to sort through the allegations, Mr. Roddy said.

A key piece of evidence against GE Capital is a flier to mortgage brokers saying that "for each 25 basis points that you boost our par rates, we'll pay you 1/2 point - up to three points maximum." The flier is from Travellers Home Equity Services, which was subsequently bought by GE Capital and whose policies, the suit alleges, were also adopted by GE Capital.

Stephen A. Sobin, precsident of State-wide Capital, a Uniondale, N.Y., division of Superior Bank, said lenders have long paid overages to mortgage brokers. He said his company never has - and has suffered for it.

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