Federal Judge Approves $60 Million Settlement with Home Mortgage Lender

September 11, 2002

SANTA ANA, Calif., /PRNewswire/ -- In a hearing today in U.S. District Court, Central District of California, Judge David Carter approved the settlement of a lawsuit involving a California-based home mortgage lender, First Alliance Mortgage Company (First Alliance) and its chief executive officer. Under the settlement, nearly 18,000 borrowers will receive as much as $60 million in compensation.

"Since 1998, AARP has vigorously prosecuted the case it filed on behalf of borrowers nationwide against First Alliance Mortgage Company. The settlement of this case represents the largest consumer protection recoveries directly benefiting borrowers. This victory for consumers underscores AARP's strong commitment to combat unlawful practices in the mortgage lending industry," said Bill Novelli, AARP CEO.

Under the settlement, a consumer redress fund will be created, and will be funded by all remaining assets of First Alliance, which has been liquidated in bankruptcy court. In addition, former CEO Brian Chisick and his wife, Sarah Chisick will pay $20 million into the fund.

First Alliance, which was headquartered in Irvine, California, offered home equity loans targeted to "subprime" borrowers, a group which includes those with marginal or poor credit ratings, many of whom would not qualify for conventional loans. AARP has been active in opposing such "predatory lending" practices since it launched a multi-faceted, statewide campaign with California Attorney General Bill Lockyer in April, 2001. Components of this campaign have included a successful effort to pass regulatory legislation, lawsuits against predatory lenders, and public outreach to increase awareness of predatory lending practices.

AARP's lawsuit alleged that First Alliance engaged in deceptive business practices to lure consumers into taking out loans with large origination fees or "points." These fees, along with others charged by First Alliance, often amounted to as much as 25 percent of the loan amount. In addition, consumers were allegedly misled about increases in the interest rate and monthly payments on adjustable rate mortgage (ARM) loans. AARP's lawsuit was combined by the Court with lawsuits brought by the Attorneys General of California, Illinois, Massachusetts, Florida, Arizona, and New York, as well as the Federal Trade Commission (FTC), and individual borrowers.

The settlement of these consolidated lawsuits includes the following relief:

  • An injunction preventing First Alliance and Brian Chisick from making misrepresentations regarding offers of credit;
  • The establishment of a redress fund to be distributed to borrowers who obtained loans from First Alliance from January 1, 1992 and March 23, 2000, and who have not settled separately with First Alliance.
  • A permanent ban preventing Brian and Sarah Chisick from engaging in mortgage lending in California, Florida and Illinois.

The FTC will administer the redress fund and will notify consumers of any actions they must take to receive compensation.

(Civil Action Number: SACV 00-964 DOC (MLGx))

Source: Mortgage Bankers Association

Contact ALTA at 202-296-3671 or [email protected].