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Post date: June 23 1999

Spitzer Announces Landmark, $6 Million Settlement With Long Island Mortgage Company

Attorney General Spitzer today announced a landmark agreement with a Long Island mortgage company which should fundamentally change the way an important segment of the home loan industry operates throughout New York state.

Spitzer had charged that Delta Funding of Woodbury, Long Island had made over 1,000 high interest illegal home loans to low income, minority residents in Brooklyn and Queens over the past three years.

"With this settlement we've struck an important balance between cleaning up an entire industry which has been preying on poor people and still encouraging lenders to do business in under-served neighborhoods," said Spitzer.

"This agreement will not only help right past wrongs, but ensure that people are protected in the future - it's really the best of both worlds."

Under the agreement-in-principle-- an agreement which averted the filing of a major civil rights lawsuit by Spitzer in federal court -- Delta agrees, among other things to do the following-

  • Pay $6 million to victims of their loan practices;
  • The appointment of a neutral monitor for the next three years to review Delta's loan files in order to insure compliance with all existing civil rights, banking, and consumer fraud laws;
  • End the payment of 'yield spread premiums'-- which are described by some as kickbacks to brokers-- in certain classes of loans;
  • Reform its underwriting guidelines to insure that borrowers are left with sufficient income to live on after payment of their monthly obligations, and that people who can't afford large mortgage loans do not unknowingly place their homes at risk by entering into costly mortgage loans with Delta;
  • Permit the neutral monitor-- and ultimately the federal court-- to carefully scrutinize the most questionable transactions, and to impose judicial remedies when patterns of violations are discovered.

The agreement seeks to end some of the most common complaints against Delta, including loans which drive borrowers into poverty, loans which result in home foreclosure, and loans made to borrowers who simply cannot afford them.

Spitzer alleged that the mortgage loans made by Delta carried exorbitant interest rates --sometimes as high as 14%-- and excessive fees of ten percent or more. That combination, Spitzer charged, led to people losing their homes, and many others being forced to pay more than 50% of their monthly pre-tax income to make payments on the loans from Delta.

"I believe this landmark agreement will result in much-needed, widespread reform of this entire industry," said Spitzer. "We have now set the standard for other similar companies to conform to. With this settlement as a start, we hope to put an end to the practice of people being forced to choose between buying food and clothing or making the monthly payment on an exorbitant loan in order to keep their homes."

Delta is one of the largest companies of its kind in the country, making over $1 billion worth of home loans a year. New York citizens provide it with a significant portion of its business.

The case is being handled by the Civil Rights Bureau's Deputy Chief, Mark Peters and Assistant Attorneys General Tanya Washington, Lisa Landau and Mark Fleischer, under the direction of Bureau Chief Andrew G. Celli, Jr.