States Follow Long Trail of Complaints Against Lender

Ameriquest Mortgage Co. said Monday that authorities in 25 states had raised questions about its lending practices, including the accuracy of its appraisals and how loan terms are described in spoken statements to borrowers.

The Orange County-based company also said it had agreed to pay up to $50 million to settle a class-action lawsuit that alleges it defrauded thousands of borrowers in four states, including California.

Ameriquest, the nation’s largest mortgage lender to people with spotty credit or modest incomes, said it had “valid responses” to the concerns raised by attorneys general and other regulators in the 25 states and was in discussions with them.

Still, the disclosure underscored the widespread interest in the company, which has been the target of consumer complaints and suits alleging a pattern of fraud, falsification of documents and bait-and-switch sales tactics.

Last month, The Times reported that former Ameriquest loan agents around the country had complained that pressure to write loans caused some employees to forge documents and push appraisers to inflate home values so that hard-pressed borrowers could qualify for mortgages.

The company first disclosed that it had been talking with state financial regulators and attorneys general in a Feb. 23 Securities and Exchange Commission filing, a prospectus for potential buyers of interest-paying bonds backed by streams of payments from Ameriquest loans.

On Monday, an Ameriquest spokesman said that fraud was rare. When it does occur, he said, Ameriquest aggressively roots it out and disciplines or fires the employees responsible.

“We are working to resolve the issues under discussion with these agencies,” the company said in a statement. “Ameriquest is committed to providing customers with the credit they deserve to achieve their financial goals.”

Connecticut Atty. Gen. Richard Blumenthal said Monday that his state was concerned about the fees Ameriquest charges repeat customers. Connecticut has received dozens of complaints about the company’s lending practices since the state ended an Ameriquest investigation last year with a settlement agreement, he said.

“Ameriquest has violated not only the letter of our law,” he said, “but also the spirit of our agreement that gave them a second chance.”

The company said in its prospectus that it has requested a hearing to defend itself against Connecticut banking regulators, who have threatened to bar Ameriquest and two of its affiliates from originating mortgages in the state over allegations that it charged excessive fees when it refinanced loans for existing customers.

Ameriquest blamed a computer glitch for the alleged violations. It said in its prospectus that it “will be able to address the Department’s concerns.”

Officials in 10 other states, including California, declined to comment when asked about possible concerns about Ameriquest, and the company did not identify the 25 states.

A knowledgeable government source in one state, speaking on condition of anonymity, said an initial settlement offer by the company met with a cool response and that another meeting between Ameriquest and state officials was scheduled for late this month. “In April we’ll have a better sense of whether we settle or sue,” the source said.

The proposed settlement in the class-action suit will go before a San Mateo Superior Court judge June 24 for final approval. If the settlement is approved, individual borrowers could opt out of it to pursue their own suits.

Michael J. Cereseto, an attorney representing Ameriquest, said the company hadn’t admitted any liability in agreeing to settle the case.

“We are satisfied that the terms of the settlement are fair and that the settlement allows Ameriquest to focus all of its attention on providing credit to millions of Americans,” the company said in a statement, adding: “The settlement pertains to some issues that are nearly 10 years old.”

Based in Orange, Ameriquest Mortgage is a unit of privately held Ameriquest Capital Corp. Its founder and majority owner is Los Angeles billionaire Roland Arnall, a major contributor to Gov. Arnold Schwarzenegger and other politicians.

In 1996, the company, then known as Long Beach Mortgage Co., paid $4 million to settle U.S. Justice Department charges that its lending practices cheated minorities, women and elderly people.

The Federal Trade Commission suspended an investigation into Ameriquest’s lending in 2001, after the company promised to adopt “best practices” that would set a standard for subprime lenders and pledged to make $360 million in low-cost loans to borrowers identified by ACORN, a national grass-roots group.

The San Mateo County class-action suit, filed by Burlingame, Calif., law firm Cotchett, Pitre, Simon & McCarthy, accused Ameriquest employees of surprising borrowers at loan closings with high fees and interest rates that often were markedly higher than had been promised in good-faith estimates of the loan costs.

Employees used ruses such as telling the borrowers their old loans had already been paid off to pressure them into accepting new loans, the lawsuit says.

The proposed settlement would give refunds to certain California customers who received loans from 1996 through February 2004, and other borrowers in Texas, Alabama and Alaska who took out loans from 1998 through February 2004.

To qualify, the annual percentage rate on the borrowers’ loans must have risen by more than 0.9 percentage point from the good-faith estimate provided early in the loan process until the closing. Class members whose loans were made between Feb. 3, 2003, when Ameriquest said it initiated “fixed pricing” that protected consumers, and Feb. 29, 2004, must swear that they were subjected to “bait and switch” tactics. Their claims could be challenged by the company.

Class members also could be entitled to a 50% refund of any prepayment penalties if their preliminary loan disclosures did not reflect that the loan might have contained such a penalty. Ameriquest has identified 1,671 class members who may fall into that category.

According to estimates filed with the proposed settlement, a few borrowers might qualify for five-figure refunds from the company.

An Ameriquest spokesman said he anticipated there would be few refunds, noting that an economist hired by the company had determined that in nearly 70% of the loans, the annual percentage rate decreased between the time of the good-faith estimate of costs and when the loan closed.

Ameriquest would pay at least $15 million, and no more than $50 million, under the terms of the deal.

That’s “pocket change for Ameriquest,” said Aaron Myers, a San Francisco lawyer who has filed a similar consumer suit seeking class-action status against the company.

Ameriquest doesn’t disclose revenue, but a trade publication estimated that the company and its affiliates originated $55 billion in mortgage loans last year.

Myers and Matthew Lee, director of Fair Finance Watch, a Bronx, N.Y.-based fair lending group, said they doubted the settlement would lead to any substantive changes.

Lee called Ameriquest a “serial settler” whose “best practices,” adopted over the last five years, have not changed the way it does business. He said the amount of the settlement “sounds extremely, strikingly low, given the volume of Ameriquest’s lending and harm that it’s caused.”

Fair-lending advocates will be watching what happens to ensure this isn’t a case of “sweeping the Ameriquest problem under the rug and allowing them to harm more people,” Lee said.

Special correspondent Mike Hudson in Roanoke, Va., contributed to this report.