The American Association of Retired Persons has thrown its weight behind a lawsuit alleging that a leading subprime lender preyed on senior citizens and fraudulently sold them on high-cost mortgages.
The 30 million-member association said Wednesday that it has joined a lawsuit seeking $50 million in restitution from the lender, First Alliance Mortgage Co., Irvine, Calif.
The support of AARP - which boasts a $450 million budget - adds firepower to the case, which was filed in California Superior Court in Santa Clara on behalf of Mary Ryan, a 76-year-old homeowner in San Jose, Calif.
"The AARP carries tremendous clout," said Frank Torres, legislative counsel for Consumers Union, Washington. "This should send a strong message to lenders that abuse homeowners that their actions aren't going to be tolerated anymore."
First Alliance, which had not been formally served with the AARP's charges at press time, said it could not comment on them specifically. However, chief executive officer Brian Chisick denied any wrongdoing and defended the company's record of serving borrowers who cannot obtain funds through traditional borrowers.
An AARP official said the association is intent on policing the mortgage industry because it has found evidence of growing abuses. 'We don't want to see people losing all their money," said Laura Polacheck, senior policy analyst. "If you're 75 or 80, you're not going to go back to work to get it back."
The lawsuit centers on allegations that First Alliance, on separate occasions in 1995 and 1996, duped Ms. Ryan into taking loans with exorbitant rates and fees by concealing the terms and conditions of the loans. Ms. Ryan paid more than $10,000 in points and fees for one $40,000 loan, the suit alleges.
The plaintiffs claimed that when Ms. Ryan attempted to refinance with another lender, Title West Mortgage Co., a First Alliance officer visited her home posing as a Title West agent, and tricked her into signing for another First Alliance loan.
The suit alleged that First Alliance engages in a raft of deceptive practices, including concealing loan amounts from borrowers and "loan flipping," or refinancing borrowers into ever-larger loans. First Alliance, the plaintiffs claimed, charges "unconscionable" fees averaging 15 points for loans and singles out older people on fixed incomes in a calculated effort to strip equity from their homes.
First Alliance, which operates in 18 states, the District of Columbia, and the United Kingdom, originated $528 million last year, a 63% increase from 1996.
The subprime lending industry has been the subject of intensifying scrutiny over the past two years. The Federal Trade Commission, the Department of Housing and Urban Development, and congressional committees have all been grappling with how much responsibility lenders and brokers should have for providing borrowers with the best deal possible.
Other subprime lenders that have come under heat include Capital City Mortgage Co., Washington, and Associates First Capital Corp., Dallas.
Some lenders are angry about the reported abuses, saying bad practices by a handful of companies could tarnish everyone.
"I don't think there is such a thing as a real sophisticated borrower," said William Dallas, CEO of First Franklin, San Jose, Calif. "Basically they put their lives in the hands of originators, and we guide them. It's the industry's responsibility to provide customers with instruments that they won't kill themselves with."
Lawyers said the suit illustrates a trend toward "increased public and private enforcement related to subprime lending generally, and lending to the elderly in particular," said Andrew Sandler, attorney with Skadden, Arps, Slate, Meagher & Flom in Washington.
