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SIX STATES SUE GMAC OVER ESCROW FUNDS; FIRM ALLEGEDLY COLLECTED TOO MUCH FOR ACCOUNTS

GMAC Mortgage Corp. was sued today by New York and five other states for allegedly collecting millions of dollars in mortgage escrow overpayments.

Attorneys general here and in California, Iowa, Massachusetts, Minnesota and Texas said GMAC, one of the nation's largest mortgage lenders, had collected from borrowers more money than allowed by federal and state laws to pay property taxes and insurance premiums.

Their suit, filed in federal court in Manhattan this morning, would bar the practice and force GMAC to use a new computation on escrow accounts.

GMAC, a subsidiary of General Motors Corp., holds mortgages for at least 5,000 New York residents. It has about 400,000 residential mortgages nationwide.

GMAC disputed the state's claims and said its escrow practices are "within the industry norm."

"Our practices are common practices within the industry," said Rick Gillespie, a GMAC spokesman in Philadelphia. "We are confident our practices are in line."

The company has known for several years that the states were looking at escrow account practices and has cooperated fully with them, he said.

Escrow accounts are kept by lending institutions to make payments for property taxes, insurance and other items that borrowers must pay. Extra money in escrow is a bonanza for lenders because they can use the money for free or pay only a low rate of interest on it.

A study by seven states in April concluded that between $2 billion and $4 billion in overcharges were being illegally held by mortgage lenders.

The states argued that many lenders routinely violate a 1975 federal law that allows lenders to accumulate a surplus in escrow accounts equal to no more than two months of payments.

It analyzed GMAC and three other major mortgage lenders and found that in 70 percent of the accounts analyzed, excess money was being held in escrow accounts.

The average escrow account was overcharged by $150, the report found.

New Yorkers probably face bigger overcharges because of the state's higher property taxes and insurance premiums, said New York Attorney General Robert Abrams.

When the report was released the states called on Jack Kemp, U.S. secretary of housing and urban development, to enforce the 1975 law. Kemp has not taken any action.

Kemp's inaction forced the states to take matters into their own hands and file suit, said Abrams.

"We continue to demand that HUD Secretary Jack Kemp correct the mortgage industry's unscrupulous practice without further need for time-consuming litigation," he said.

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