Study: Thrift Loans Rife With Mistakes

Got a consumer loan or adjustable rate mortgage? Better check the terms. You could be paying too much.

A recent study of 7,000 such loans at savings and loans taken over by the federal government showed that more than half were rife with errors, says John Geddes, a computer consultant in Mays, Ind., who conducted the research.

The findings have prompted an investigation by the Federal Deposit Insurance Corp., which is helping oversee failed thrifts until they can be sold or closed.

Geddes says consumers were being overcharged in 35 percent of the loans he checked and undercharged in 15 percent. He checked loans at about 20 thrifts and their mortgage servicing companies.

The problems were most evident in adjustable rate mortgages, or ARMS, which generally are home loans that start out with a below-market interest rate that can rise each year until it reaches the maximum negotiated by the lender and buyer. About 12 million homeowners have such loans.

The biggest mistake Geddes found was erroneous calculation of interest rate changes by lenders, who often chose too high a rate. About 30 percent of the loans had errors of this nature, he says.

Another 20 percent of the loans had errors caused by incorrect balances. Though lenders used the correct interest rate, resulting interest payments were excessive because the balance was figured too high, Geddes says.

For instance, one loan he found overcharged the customer by $800 because a $100 mistake was made in the balance in the first year of the three-year loan.

The problems were compounded when the Federal Insurance Savings and Loan Corp. took over the thrifts, Geddes says. ``They were forced to convert the institutions quickly and they had to move the data quickly,'' he says. That haste worsened the situation.

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