Moody's Investors Service has put $528 million of Delta Financial Corp.'s outstanding securities under review for possible ratings downgrades, saying bad publicity from a spate of lawsuits over alleged lending abuses could jeopardize investors' money.

Delta's lending practices have been under investigation by the New York Attorney General's office, the New York State Banking Department, and the U.S. Department of Justice. They have said that Delta unfairly induced low-income and elderly homeowners to take out high-interest mortgages they could not afford, then foreclosed on the properties when the borrowers could not make payments.

David Burkhalter, a senior analyst at Moody's, said the rating agency was concerned that "you could have a flood of lawsuits seeking damages.

"On the other hand, the plaintiff could round up a lot of Delta borrowers and persuade them to make defense claims to payments and stop paying their mortgages. You have the potential for direct impact to the deals with this, and people saying to the judge, 'We don't have to pay because look what these guys did to us.' "

Delta denies any wrongdoing. It settled a suit that was filed by the Banking Department on Aug. 20 by agreeing to accept a $7.25 million reduction in loan payments and to put $4.75 million in Delta stock in a trust fund to provide restitution to customers and finance consumer education.

This was meant to be a global settlement with the three investigating entities, but Attorney General Eliot Spitzer has now charged Delta with making more than 1,000 illegal high-interest loans in some cases charging as much as 14% annually -- to low-income borrowers in Brooklyn and Queens over the past three years.

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