Ameriquest Deal Sets Standard for Loan Marketing

Ameriquest Mortgage Co.’s $325-million settlement of predatory lending charges will set new standards for the lending industry and provide $43 million for California customers, but critics said that the deal didn’t go far enough to reimburse borrowers.

Representatives of a 49-state task force said the settlement announced at a Los Angeles news conference Monday would end a culture of high-pressure sales tactics at the Orange-based company and provide refunds for hundreds of thousands of customers.

“What we saw was an enormous pressure to sell,” said Iowa Atty. Gen. Tom Miller, who headed the multistate effort. “The branch managers were just pushing loan agents to sell, sell, sell, and the regional managers were pressuring the branch managers.”

Ameriquest denied any systematic wrongdoing, and it noted that the settlement didn’t affect its licenses to do business in any of the states.

“This agreement is good for consumers and fair to our company,” Ameriquest said in a statement.

California Atty. Gen. Bill Lockyer said consumers here would get the largest slice of the settlement dollars, reflecting more than $23.8 billion in Ameriquest-financed loans taken out in California since 1999.

The settlement is the second-largest with a mortgage company, after Household International’s $484-million agreement with 50 states in 2002. Negotiators also said the lending procedures required of Ameriquest would probably become a new standard in the “sub-prime” market that caters to credit-strapped borrowers.

The settlement followed a two-year investigation by the states triggered by consumer complaints. In lawsuits and interviews, borrowers claimed that Ameriquest loan officers used deception and high-pressure sales tactics to push them into mortgages with excessive fees or unreasonable terms.

In addition, former loan officers interviewed by the Los Angeles Times described a work environment in which many loan agents would do whatever it took to close a deal -- including falsifying a borrower’s income or pushing appraisers to inflate the value of homes.

Most borrowers who took out Ameriquest loans from Jan. 1, 1999, to April 1, 2003, would be eligible for refunds of at least $600, Miller said. This money would come from a $175-million restitution pool and be distributed through a national claim process. People who took out loans after April 1, 2003, are not eligible for that money because Ameriquest implemented software changes that were designed to minimize abuses after that date.

A smaller pool of $120 million would cover loans between Jan. 1, 1999, through 2005, Miller said, and be distributed by individual states. Officials could not say what the refunds from that pool would average, but based on the estimated number of loans involved, the refunds could be as little as $250.

An additional $30 million is earmarked to pay for the states’ investigatory costs.

Gary Klein, a Boston attorney pursuing civil claims against Ameriquest, said many consumers could do better in court, where they could potentially recover $10,000 or more under the federal Truth in Lending Act.

“Consumers are likely to receive restitution for only a small portion of their claims,” Klein said of Monday’s pact.

A group of advocacy and community groups led by the Greenlining Institute praised the conditions imposed on Ameriquest, but called the amount of restitution “grossly inadequate.”

Lockyer spokesman Tom Dresslar said the decision whether to take the settlement “will be up to the consumer.”

Carolyn Pittman, a 69-year-old Jacksonville, Fla., widow who is facing foreclosure on a mortgage she took out from Ameriquest in 2004, said the deal wasn’t enough to satisfy her.

“I think they [Ameriquest] should go out of business because they’re not treating us right,” Pittman said. “I don’t think they can change.”

Pittman, who has difficulty reading and suffers from a serious heart condition, alleges in a lawsuit that Ameriquest took advantage of her by overvaluing her home and padding the loan with illegal fees.

“I don’t think a few hundred dollars is going to help her,” said Pittman’s lawyer, Diana Bolling.

Ameriquest spokesman Chris Orlando said Pittman’s story “is unfortunate, and we’re hopeful of being able to reach a resolution.”

The multistate settlement also applies to the District of Columbia. The only state it does not include is Virginia, where the company does not do business.

Under the agreement, Ameriquest is required to make clear disclosures of terms throughout the loan process and to remove incentives for loan officers to give customers expensive loans.

Two measures are designed to prevent loan officers from undue influence. One requires centralizing the property valuation process so loan officers can’t pressure appraisers to overvalue homes. The second measure requires that loans be finalized by outside “closers,” so loan officers can’t unfairly lean on borrowers.

The settlement also requires appointment of an independent monitor to ensure compliance.

Eligible borrowers will receive letters this year informing them of the minimum amount they would receive as part of the settlement. The letters would explain that by accepting the settlement they would forfeit their rights to pursue litigation. Borrowers whose homes fell into foreclosure proceedings, however, would retain their right to sue.

Numerous lawsuits remain active, most of them focusing on alleged bait-and-switch tactics. Others claim that Ameriquest charges fraudulent late-payment fees and snoops into non-customers’ credit reports without permission.

Five suits have been consolidated in federal court in Chicago, and seek to obtain class-action status. The attorneys in that case say customers could receive far more by participating in those suits -- but also acknowledge the possibility that the suits could provide little or no relief.

Kurt Eggert of the Chapman University School of Law in Orange said the settlement would force Ameriquest to do a better job disclosing loan terms, but said it did little to rein in higher costs. “Buyers can still get relatively high rates,” he said, “but at least they’ll know what they are getting.”

Special correspondent Mike Hudson contributed to this report.