In the second largest state or federal mortgage consumer protection agreement in history, Ameriquest Mortgage Co. has agreed to a $325 million settlement to be split among 49 states and the District of Columbia.
Only the $484 million accord reached in 2002 between most states and Household Finance Corp. was larger.
The Ameriquest settlement includes a $295 million payment to consumers and $30 million paid to the settling states participating in the agreement.
The settlement was signed last week by officials of 49 states and the District of Columbia. (Virginia is not a party because Ameriquest did not conduct business there.) Each signing state will file the settlement in their respective state courts by March 15, 2006, along with any consumer protection lawsuits resolved by the settlement.
In addition to the monetary settlement, the Orange, CA-based company agreed to make sweeping reforms of practices states alleged were predatory.
Predatory lending is a malignant outgrowth of the otherwise useful subprime residential mortgage sector. Subprime loans are generally more expensive than prime loans, but they are intended for borrowers who pose a greater risk to lenders, typically because of the lack of credit or previous credit problems. Without the subprime segment, some borrowers would be locked out of the American Dream.
Unfortunately, in numerous documented class action suits, state-filed cases and other claims, too many subprime loans became predatory with exorbitantly high costs, penalties and other financially abusive features often directed at specific groups, including minorities, older, low-income borrowers and others who can least afford the added cost.
Nearly six years ago, Ameriquest, pressured by in-your-face activists from ACORN (Association of Community Organizations for Reform Now), agreed to commit $360 million in consumer safeguards and "best practices" for its customers.
At the time, "These new safeguards -- the strictest standards in our industry -- will help elevate the vision for good corporate citizenship among all subprime mortgage lenders," said Kirk Langs, then Ameriquest president.
With the new accord, the company's prepared statements were hauntingly familiar.
"This agreement is good for consumers and fair to the company. It provides a framework for new lending policies that improve and enhance our ability to serve our customers and are a model for the industry," said Aseem Mital, chief executive officer of ACC Capital Holding Corp., Ameriquest's holding company.
Ameriquest has never acknowledged wrongdoing and the new court-sanctioned edict did not restrict or limit the company's licenses.
However, the settlement does come with teeth that were missing from the ACORN accord. It says Ameriquest will:
- Provide the same interest rates and discount points for similarly-qualified consumers.
- Provide full disclosure regarding interest rates, discount points, prepayment penalties, and other loan or refinancing terms.
- Overhaul its appraisal practices by removing branch offices and sales personnel from the appraiser selection process, instituting an automated system to select appraisers from panels created in each state, limiting the company's ability to get second opinions on appraisals, and prohibiting Ameriquest employees from influencing appraisals.
- Not encourage prospective borrowers to falsify income sources or income levels.
- Provide accurate, good faith estimates.
- Not engage in refinancing solicitations during the first 24 months of a loan, unless the borrower initiates it.
- Use independent loan closers.
- Adopt policies to protect whistle-blowers and facilitate reporting of improper conduct.
To make sure Ameriquest doesn't shirk from its promises, the agreement will also appoint an independent monitor to oversee Ameriquest's compliance with the settlement terms. The monitor will have broad authority to examine Ameriquest's lending operations, including access to documents and personnel. The monitor will submit periodic compliance reports to the Attorneys General during the next five years at Ameriquest's cost.
The settlement includes ACC Capital Holding Corporation (the holding company), and its subsidiaries, Ameriquest Mortgage Company, Town & Country Credit Corporation, and AMC Mortgage Services, Inc., formerly known as Bedford Home Loans.
Astronomical growth in the subprime lending market during the last few years made Ameriquest the nation's largest subprime mortgage lender.
Law enforcement officials and regulators initiated their investigation after hundreds of Ameriquest customers complained about the company's practices.
Investigations turned up a host of practices including inadequate disclosure of prepayment penalties, discount points and other loan terms; unsolicited refinancing offers that did not adequately disclose prepayment penalties; improperly influenced and inflated appraisals; and borrowers encouraged to lie about income or employment to obtain loans, all considered predatory lending practices.