SAN FRANCISCO (CN) - EMC Mortgage can pay $1.7 million to settle claims over mortgage loans with allegedly misleading interest rates, a federal judge ruled.
The class, led by Armando and Melania Plascencia, had filed the 2007 federal complaint against Lending 1st Mortgage. EMC, as the buyer of the loans that Lending 1st had originated, was later added as a defendant.
Like "thousands of other" home owners, the Plascencias allegedly bought optional adjustable-rate mortgages, or ARM, with the promise that the loans had "a low, fixed interest rate."
In reality, however, the "plaintiffs were charged a different, much greater interest rate than promised," the said. "Further, defendants disguised from plaintiffs the fact that defendants' Option ARM loan was designed to, and did, cause negative amortization to occur. Further still, once lured into these loans, consumers cannot easily extricate themselves from these loans. Defendants' Option ARM loan includes a stiff and onerous prepayment penalty making it extremely difficult to extricate from the loans."
After the class settled with 1st Lending in May 2013, its makeup was redefined to include only borrowers who took out option ARM loans that EMC bought. Just 572 loans are eligible under this class definition.
Last month, the class stipulated to a new settlement with EMC.
Any class member of the class who chooses not to opt out will receive a cash payment and no claims will be required.
"In order for settlement payments to be related to the amount of negative amortization (the primary source of restitution sought by settlement class members) incurred by settlement class members, the payment schedule contains payment amounts that range from $505-$5,469, depending upon the original principal amount of the Loan and the time period for which the settlement class member made regular monthly payments on account of the loan," the agreement states. (Parentheses in original.)
U.S. District Judge Claudia Wilken gave the deal preliminary approval Friday. In addition to a $1.7 million fund for the settlement class, the lead plaintiffs will recover up to $2,500 each in incentive payments. Class counsel, in this case Jeffrey Berns of Berns Weiss in Woodland Hills, Calif., will seek up to 30 percent in compensation from the fund for services, costs and expenses.
Wilken said there will also be a website containing information about the settlement agreement and how to access claims.
The final hearing for the settlement is set for Jan. 16, 2014.
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