First published July 26, 2002:
For the first time, Household International has acknowledged that its employees may have misrepresented mortgage loan terms to some Whatcom County homeowners who refinanced their homes at the Bellingham office of Household Finance Co., a subsidiary.
Household International spokeswoman Megan Hayden said the Bellingham office manager has been replaced as a result of the company's own investigation of consumer complaints.
But the departed manager told The Bellingham Herald that she's being made a scapegoat.
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In recent months, nationwide lending giant Household has faced a rash of complaints from local homeowners who said they unwittingly refinanced their homes at higher interest rates after hearing misleading Household sales pitches.
The same homeowners have also complained of exorbitant loan fees and life insurance premiums added to the principal of their loans, plus high prepayment penalties that made it nearly impossible for them to refinance with another lender.
Four of the local homeowners have joined in a lawsuit against the company filed by Wenatchee attorney Bob Parlette.
Until now, company spokesmen have portrayed Household as an industry leader in consumer protection, with elaborate safeguards to make sure borrowers understand the deals they are signing.
But this week, Hayden said an internal company probe of the complaints had uncovered some serious problems.
"Those investigations did indeed show that there were some customers whom we believe had legitimate confusion on the interest rate on their loans," she said. "There may have been a miscommunication."
Where problems were discovered, Hayden said Household has tried to make amends.
"We moved quickly to make it right with the customer and, frankly, apologized to the customer," Hayden said. "It is an absolute violation of our company policy and our employee training" to misrepresent loan terms.
Asked if anyone at the Bellingham office had violated that policy, Hayden replied, "Yes, we believe so, and those people have been held accountable for that."
Asked to elaborate, she replied, "We have a new branch manager working in the Bellingham branch. ¼ We take such violations very seriously."
Hayden's comments didn't sit well with the former branch manager, Melissa Drury.
"They're just looking for a local scapegoat," Drury said.
Drury said she is a Western Washington University graduate who received high marks from her superiors during her 13 years with Household.
"I've always had excellent audits," she said. "I've been probably one of the best employees that they've had over the last 13 years. I've always done what I've been taught."
Drury said the sales pitches she used on potential borrowers came from the company.
"The bottom line is, they (the sales pitches) are Household programs," Drury said. "Nothing was done to intentionally mislead anybody. ¼ My number one interest would be never to hurt our customers."
More than two dozen local homeowners have contacted The Herald to tell similar stories of how they signed mortgage refinancing agreements with Household that saddled them with higher annual interest and higher payments than they started out with.
In nearly every case, the homeowners said they were shown loan repayment schedules with an "equivalent interest rate" of around 7 percent on a 30-year mortgage. But because the loans had to be paid back in a shorter period, usually 16 years, the actual annual percentage rate was often 12 percent or more.
In every case, the interest rate on the Household loans was much higher than what they had paid before refinancing, and probably far above the rate the same borrowers would have been charged elsewhere.
The complaining homeowners said they were rushed through the loan closing process and felt pressured into quickly signing things they had not read or understood. Some homeowners said they noticed the higher annual interest rate amounts spelled out on the documents they were signing, but company representatives reassured them that they were only going to have to pay the lower "equivalent" interest rate.
The aftermath pushed some homeowners into bankruptcy, and a few are facing foreclosure.
Drury denied that there was any scheme to take advantage of Household borrowers.
"The people that go to Household are people who are financially in trouble," she said. "The bottom line is to put people into a better position."
Asked to comment on Hayden's statements that borrowers may have been misled in the Bellingham office, Drury replied, "The bottom line is, everything has been Household's programs. Household's programs may have been misleading, then."
Drury also denied that Household had fired her. She said she departed on "mental disability due to their treatment." She described herself as still recovering from her split with the company, which she compared to a divorce.
Both attorney Parlette and state investigators agree that complaints about Household's practices are not confined to the Bellingham office. Couples from Stanwood and Spokane have joined in Parlette's lawsuit.
Chuck Cross, chief investigator with the state Department of Financial Institutions, has said his office has received complaints against Household from around the state.
The department's report on those complaints has been withheld from the public for several weeks because Household's lawyers convinced a Thurston County Superior Court judge to block its release. That matter will be back before the court in early August.
Bellingham carpenter Bob Penny, who has had his own problems with a second mortgage from Household, said he is part of an e-mail list of about 80 disgruntled Household customers who keep in touch and compare their experiences. Penny said some of the Household customers have been offered improved terms on their loans, but others have been rebuffed.
"There seems to be some inconsistency around what they're offering," he said. "People are getting offers when they haven't even made complaints. Other people who have made extensive complaints haven't gotten offers."
Penny said he doesn't believe the questionable practices are limited to the Bellingham office.
"I've gotten e-mails from people who had the exact same things happen in Spokane and Bellevue," he said.