Mortgage company agrees to change lending practices
Posted on Wed, Mar. 22, 2006
Mortgage company agrees to change lending practices
By Rick Jurgens
CONTRA COSTA TIMES
Ameriquest Mortgage Co., the nation’s largest provider of high-interest rate loans to home buyers, has agreed to a judgment that will require it to clearly disclose loan terms and fees, not tamper with appraisals and set aside $26.6 million to pay restitution to California customers.
The judgment, entered Tuesday in Alameda County, spells out terms of a previously announced $325 million deal between Ameriquest and prosecutors in 49 states that in addition to the $26.6 million for California includes $175 million in nationwide restitution payments. Both sets of payments could raise restitution to customers throughout California to as high as $50 million, prosecutors said.
Administrators of the settlement will contact consumers who are eligible for restitution, according to a release from the Alameda County District Attorney’s Office.
Prosecutors accused Ameriquest of using “bait and switch” and other misleading sales tactics, hiding loans’ financial terms and prepayment penalties, arranging inflated property appraisals and encouraging prospective borrowers to fabricate income statements.
Ameriquest, based in Orange, denied any wrongdoing. “We’re pleased with our progress in carrying out the agreement,” said Chris Orlando, a company spokesman.
The deal, in the form of an injunction requiring Ameriquest to abide by its terms, provides for the imposition of civil penalties if violations occur, said Larry Blazer, a senior deputy assistant district attorney in Alameda County.
The injunction, which applies to Ameriquest’s retail offices, requires the company to provide customers’ with a one-page disclosure stating clearly whether it is fixed or variable rate. The disclosure, which must be handed over three days before the loan closes, must also reveal a loan’s size, fees, points, monthly payments, interest rate and maximum prepayment penalties, and it must be available in Spanish or any other languages in which Ameriquest advertises.
The injunction also requires that Ameriquest tie loan terms to credit risk, limit its role in the appraisal process and protect whistle blowers. It forbids payment of sales incentives for getting consumers to agree to prepayment penalties and bars the company from soliciting refinancing transactions during the first 24 months of a variable interest mortgage.
The injunction does not apply to transactions underwritten by the company’s wholesale unit and executed by independent mortgage brokers.
Ameriquest is a high-profile company that sponsored the fan voting for Major League Baseball’s 2005 All Star Game and the current tour of the Rolling Stones. The company’s owner, Roland Arnall, is the new U.S. ambassador to the Netherlands. His official biography posted on the State Department Web site says that Ameriquest “helped modernize the nonprime lending industry.”
But that modernized industry remains a confusing and sometimes perilous terrain to be navigated by home buyers and mortgage borrowers. “What people know at the end of a loan transaction is often not the full picture of what they are buying,” Blazer said.
Blazer also said that he was “startled” when he began to learn about the industry on a task force set up four years ago in response to consumer complaints in Alameda County. “It’s a business that is not tightly regulated,” he said. “There is money to be made there.”
Some consumer activists have criticized the settlements between state prosecutors and Ameriquest for failing to provide sufficient restitution or prohibit so-called “no document” loans in which borrowers are not required to provide proof of income.