Ameriquest Plans to Cut 3,800 Jobs

The parent of Orange-based Ameriquest Mortgage said Tuesday it would lay off one-third of its nationwide workforce and close all 229 of its retail branches, in the latest sign of retrenchment in the real estate market.

The move to cut 3,800 jobs from a total of 11,000 is a dramatic shift by Ameriquest, which in recent years became one of the largest lenders to people with poor, or subprime, credit ratings.

As the company boomed, it faced allegations that some sales agents used heavy-handed tactics and deception to persuade consumers to take its loans, virtually all of which were refinancings of existing mortgages.

In January, Ameriquest settled an investigation by 49 states by agreeing to pay $325 million and to change its business practices. The company did not admit wrongdoing.

On Tuesday, Ameriquest executives said in a statement that the company decided to close its branches as a cost-cutting move “in an industry that is undergoing fundamental changes.”

ACC Capital Holdings, Ameriquest’s parent, said it would centralize loan production in four regional offices in California, Arizona, Illinois and Connecticut. Customers will be able to fill out loan applications on the Internet, then be contacted by representatives in one of the regional offices, the company said.

“We see a fundamental shift underway in how nonprime consumers shop for mortgage loans, away from bricks and mortar,” said Adam Bass, ACC Capital’s vice chairman, said in a statement.

“This is about more than today’s challenging mortgage market conditions. It’s about getting ahead of the competitive curve for the long term,” he said.

Some analysts said the decision to jettison Ameriquest’s branches suggested that the company might be concerned it couldn’t effectively control what went on in those offices.

“I would guess it is very difficult to provide profit incentives to branch managers in far-flung locales and expect them to comply with all relevant laws,” said Daniel K. Osborne, a Phoenix-based investment fund manager who specializes in real estate.

Asked whether closing the branches would give Ameriquest greater control over its lending practices, a company spokesman referred to Bass’ statement.

“The strategy and business practices of our new retail model are well aligned with our commitment to consumer-friendly lending policies and with the business enhancements included in our multistate agreement” with regulators, Bass said.

The economic backdrop for Ameriquest’s move is a slowing housing market after years of boom times. In Southern California, the number of homes sold fell for a fourth straight month in March, although prices have remained strong.

Rising mortgage rates have hit the refinancing business particularly hard. A Mortgage Bankers Assn. index that tracks applications for mortgage refinancings has fallen 50% since mid-June.

The average 30-year loan rate nationwide was 6.58% last week, a four-year high, according to mortgage giant Freddie Mac.

A number of mortgage lenders have cut staff in recent months, including Washington Mutual Inc., Aames Investment Corp. and ECC Capital Corp.

Orange-based Acoustic Home Loans, like Ameriquest a subprime lender, closed its doors last month. Orange County has been home to many subprime lenders.

U.S. mortgage industry employment, which stood at 500,000 in October, has “started to come down a bit,” said Mike Fratantoni, an economist at the Mortgage Bankers Assn. However, he said the group didn’t expect industrywide cuts on the scale of Ameriquest’s move.

The subprime lending market is in worse shape than the mortgage market as a whole, said Mike McMahon, an analyst with Sandler O’Neill & Partners in San Francisco.

“This is an inefficient market, dominated by many undisciplined participants” who have been pricing their loans below cost in an attempt to gain market share, McMahon said. Cutthroat pricing has guaranteed a loss on virtually every transaction, he said.

Irvine-based ECC Capital said that in the fourth quarter it was, in effect, making loans for $102 and selling them for $101.

The subprime industry “is in a state of transition, going from a disorganized, disorderly market to a more orderly market from a pricing and regulatory standpoint,” McMahon said.

Angelo Mozilo, chairman of Countrywide Financial Corp., the nation’s largest mortgage lender, publicly criticized Ameriquest in January, saying the company was irresponsible in its loan pricing and was hurting lenders’ earnings industrywide.

For ACC Capital, which is privately owned, the latest staff cuts are the third since November. Ameriquest slashed 1,500 jobs in December. A sister company, Argent Mortgage, laid off 640 people in January.

The cuts announced Tuesday affect Ameriquest and another ACC Capital company, Town & Country Credit.

Ameriquest was founded by Roland Arnall in 1979 as Long Beach Savings. Arnall, 66, remains the principal owner of the business but last year quit his management posts after President Bush nominated him to be ambassador to the Netherlands. He was confirmed by the Senate in February.

Among the allegations made during the states’ two-year investigation of the company were that Ameriquest employees engaged in high-pressure tactics to make loans, falsified loan documents and leaned on appraisers to overstate home values.

In its settlement, Ameriquest agreed to clearly disclose all loan terms to borrowers three days before their loans close and to remove economic incentives for loan officers to overcharge customers.

Tom Dresslar, a spokesman for California Atty. Gen. Bill Lockyer, said officials of the states “plan to sit down with Ameriquest officials to obtain more details about this restructuring and ensure that Ameriquest fully complies with the settlement.

“The bottom line from our perspective is that this restructuring should not, in any way, undermine the reforms of business practices that are required by the settlement,” he said.