• Ameriquest Pays $325 Million for Predatory Lending
  • February 2, 2006
  • Law Firm: Manatt, Phelps & Phillips, LLP - Los Angeles Office
  • The attorneys general and banking regulators of 48 states have reached a $325 million agreement with Ameriquest Mortgage Company, settling predatory lending charges against the nation's largest subprime mortgage lender.

    Under the settlement announced on January 23, 2006, Ameriquest will pay $295 million in restitution to consumers and $30 million to the states involved in the probe. The agreement was negotiated by a committee of five states, including New York, Iowa, Illinois, California, and Washington. Ameriquest does not admit any wrongdoing in the settlement.

    The two-year investigation found that Ameriquest created a hyperaggressive, high-pressure sales culture that encouraged its employees to engage in a long list of allegedly deceptive and fraudulent conduct, including:

    • Charging consumers thousands of dollars in discount points that resulted in higher commissions for sales personnel but failed to yield a lower interest rate for borrowers;
    • Concealing the interest rate and loan costs during the application process;
    • Sending inaccurate "good faith estimates";
    • Making misleading comparisons between borrowers' existing loans and Ameriquest's loan proposals;
    • Falsifying loan documents to push through loans, including inflating borrowers' incomes;
    • Pressuring appraisers to inflate the values of borrowers' homes;
    • Closing loans before they were approved by the corporate office; and
    • Failing to fund loans in a timely fashion.

    Ameriquest primarily makes refinance loans to homeowners seeking to consolidate credit card and other debt and generate overall monthly savings. After refinancing with Ameriquest, however, consumers were often trapped in mortgages they could not afford, and were left with little or no equity in their homes, the attorneys generals allege.

    The settlement agreement requires Ameriquest to:

    • Provide the same interest rates and discount points for similarly situated consumers;
    • Provide full written and oral disclosures regarding interest rates, discount points, and prepayment penalties, and provide important information regarding consumers' pricing options;
    • Overhaul its appraisal practices by prohibiting sales personnel from selecting, contacting, or attempting to influence appraisers;
    • Provide accurate good faith estimates;
    • Refrain from soliciting borrowers for refinancing within two years of the original loan, except under limited circumstances;
    • Use independent loan closers; and
    • Adopt policies to protect whistle-blowers and facilitate reporting of improper conduct.

    The agreement also requires the appointment of an independent monitor to oversee Ameriquest's compliance. The monitor will have broad authority to examine Ameriquest's lending operations and will have access to Ameriquest documents and personnel.

    Of the $295 million in restitution, $175 million will be distributed through a nationwide claims process to eligible Ameriquest customers who obtained mortgages between January 1, 1999 and April 1, 2003. The amount of the restitution for each consumer will be based on a formula developed by the settling states. Another $120 million in restitution will be allocated to the states based on the percentage of total dollar volume of Ameriquest loans held by consumers in each state, to be used at the states' discretion to provide restitution to victimized Ameriquest customers.

    The settlement -- which takes effect on March 15, 2006, upon the entry of judgment in the participating states -- is the second-largest state or federal predatory lending settlement in history, after the $484 million agreement reached in 2002 between the states and Household Finance Company.

    Significance: This settlement closes one chapter in the Ameriquest story, but isn't the end of it. Thousands of homeowners around the country have sued Ameriquest, saying they suffered financial harm after taking out an Ameriquest mortgage, including bankruptcy and loss of their homes. Several class-action suits against Ameriquest remain pending.