Ameriquest Defends Loan Practices

By EDMUND SANDERS

April 9, 2000 12 AM PT

TIMES STAFF WRITER

Scores of protesters stormed into an Ameriquest Mortgage Co. office outside Washington last month, chanting slogans like “No more loan sharks!” and “People over profits!” One demonstrator marched around in a shark costume to make the group’s point.

As stunned loan agents fled to a back office and locked the door, police arrived to quell the disturbance. The standoff ended when Ameriquest’s president, monitoring events from the company’s headquarters in Orange, reluctantly agreed to a meeting with protesters.

In more ways than one, Ameriquest Mortgage today is a company under siege.

After quietly growing over the past three years into the nation’s largest retail lender to borrowers with poor credit or low income, the intensely private company now finds itself in the middle of a raging national debate over predatory lending.

A growing chorus of legislators, regulators and consumer groups are calling for new laws to protect borrowers from hidden fees and aggressive sales tactics.

With 247 offices nationwide making nearly $5 billion in loans a year, Ameriquest is 10 times larger than another embattled sub-prime lender, First Alliance Corp., whose sudden bankruptcy last month garnered national headlines.

But because of its low-profile, Ameriquest’s name remains unfamiliar to most, except borrowers and rivals.

Unfamiliar, that is, until the Assn. of Community Organizations for Reform Now, a Washington-based consumer group, targeted Ameriquest as one of the nation’s worst examples of a company that makes high-priced mortgages in low-income neighborhoods.

The group, known as ACORN, filed a complaint last month with the Federal Trade Commission on behalf of 30 Ameriquest borrowers, claiming the company misled them about interest rates and fees.

In its protest and picketing, ACORN also notes that Ameriquest, like many of its borrowers, has a blemished past: In 1996, the lender paid $4 million to settle charges by the U.S. Department of Justice that its brokers charged higher fees to women, seniors and minorities than to young white males.

Ameriquest officials say ACORN’s accusations are grossly unfair, though they agree that predatory lending is a growing problem. The company, which is controlled by developer Roland Arnall, one of Gov. Gray Davis’ biggest campaign contributors, insists it is one of the industry’s good guys.

Ameriquest says that its loan fees are among the lowest in the sub-prime industry and that it has donated more than $5 million--above the amount required under the government settlement--for consumer education and other charitable causes.

The National Assn. of Neighborhoods, one of the recipients of that aid, rushes to Ameriquest’s defense. “They don’t deserve these protests,” said Ricardo Byrd, the group’s executive director. “Ameriquest has been aggressive and zealous in campaigning to stamp out predatory lending. They have done more than others. It’s unfair.”

So is Ameriquest a model for sub-prime lending or just another bad apple?

Symptom of Complex Problem

The debate illustrates just how difficult it will be for politicians and regulators to reform the $150 billion sub-prime industry. And there is a growing consensus that it needs fixing.

Federal Reserve Chairman Alan Greenspan said last month that some sub-prime lenders are exploiting low-income neighborhoods, and Housing and Urban Development Secretary Andrew Cuomo called predatory lending a “national crisis.” About a half dozen states, including California, are considering new laws to cap loan fees or mandate consumer education.

But while ending predatory lending is something everyone can agree upon, defining it is somewhat more complicated. It’s particularly vexing in the sub-prime industry, where eye-popping fees and high-pressure sales tactics have been standard fare for years.

Because sub-prime borrowers are about 10 times as likely to default, lenders say they need to charge higher interest rates and fees to compensate for the risk. Ameriquest says its average fees total about 3.9% of the loan amount--or $3,900 for a $100,000 loan.

Sub-prime rivals Option One and Full Spectrum, a unit of Countrywide Home Loans, each say they charge about 3%. First Alliance, one of the industry’s most controversial lenders, charged an average of 10%. Sub-prime interest rates average 10% to 12%.

By contrast, conventional borrowers with strong credit might pay 1% or less in fees and get an interest rate of about 8% in today’s hyper-competitive prime market.

ACORN’s president, Maude Hurd, says lenders like Ameriquest are exploiting the poor by charging the highest prices to those who can least afford it. The group is calling on state and federal governments to pass laws that would cap fees or mandate counseling for borrowers.

“We want interest rates in our community to be comparable with the interest rates that banks charge for all their other loans,” Hurd said. “They might be taking a slightly higher risk, but that doesn’t justify the money they are charging on these loans.”

Ameriquest prices each loan according to its risk, says its president, Kirk Langs. He points out that the company serves customers whom most banks and traditional lenders refuse to help at any price.

Different Cases, Different Answers

A look at four Ameriquest borrowers suggests there are no simple answers.

Manuel and Guadalupe Alvarado moved from Mexico four years ago and bought their first home in Santa Ana, using Countrywide. Last year, the couple says, an unsolicited Ameriquest broker hounded them for six months, calling and visiting their home, urging them to refinance.

“I didn’t even know what refinancing was,” Guadalupe Alvarado said through an interpreter. “But he promised to lower our monthly payment. That was all we wanted.”

Instead, the broker sold them a loan that increased their payments from $1,125 to 1,342 a month. And they paid $11,000 in fees. “This loan just doesn’t make any sense,” said the couple’s real estate agent.

Likewise, Debbie Roeder-Simpson says Ameriquest pressured her into a loan she couldn’t afford. The unemployed mother from Brooklyn, Minn., needed $5,000 last year to make a balloon payment on a second mortgage she used to help purchase her home.

Though she had $30,000 in equity, Ameriquest refinanced the entire mortgage, boosting her monthly payment from about $670 a month to $810. That was 90% of her entire monthly income. In two years, the payment would have adjusted upward, exceeding her income.

Within a few months, she fell behind in the payments. “I had to choose between heat in the winter and my house payment,” she said. “If you had kids, what would you do?”

Ameriquest moved to foreclose, but Roeder-Simpson found an attorney and is now seeking to rescind the loan.

Ameriquest officials said they can’t talk about specific borrowers, but they vowed to investigate every case brought to their attention. “We are going to contact these borrowers and try to resolve the problems,” Langs said.

But the company said most of the 10 cases brought to their attention by ACORN have no merit or are the result of misunderstandings. Often, loan rates and fees are higher than originally promised because borrowers tend to overestimate their income and downplay credit problems on applications.

Some of the ACORN complaints seem to reflect the financial troubles of borrowers, unrelated to Ameriquest. Additionally, several borrowers said they responded to letters or calls from ACORN that offered financial help for Ameriquest borrowers. One ACORN letter read, “Are you paying high interest rates or fees? Win fair credit and get your money back!”

Armando Ugalde is a South Central Los Angeles homeowner whom ACORN says is a victim of Ameriquest’s predatory practices. The 41-year-old airport cargo worker says Ameriquest promised to refinance his mortgage at 8% and give him $10,000 cash from his home equity. When he signed the papers, the rate was 9.75% and he only got $4,000 cash.

“They lied to me,” Ugalde said.

But Ugalde acknowledged in an interview that he turned to Ameriquest because his brother, who co-owned the property, had defaulted on a home-equity loan, leading the lender to foreclose. Because of that and Ugalde’s own bankruptcy filing two years earlier, no other lender would help, he said. Without Ameriquest, his home might have been lost.

Similarly, ACORN officials blame Ameriquest for trying to force Saundra Taylor of East Oakland out of her home. Taylor turned to Ameriquest shortly after her 1997 bankruptcy because she wanted to refinance her adjustable-rate mortgage into a fixed-rate before the payments were scheduled to rise. Other lenders turned her away because of the past credit problems.

Taylor said she fell behind in the payments in January because her employer cut her hours. Now she complains that Ameriquest is demanding she repay $2,700 in back payments--something she says she cannot afford--or face foreclosure. She was also upset to learn that she can’t refinance with another lender because her Ameriquest loan has a $6,000 prepayment penalty. “I was never told about that,” Taylor said.

After avoiding the spotlight for so many years, Ameriquest is finding that the sudden attention can burn. Last December, the company was sued by four Northern California borrowers who claim they were misled. They hope to organize as a class-action, according to San Francisco attorney Daniel Mulligan.

The company said the suit has no merit, but declined to comment further.

‘It’s Very Hard’ to Defend Against

“How do you defend yourself against something that you don’t do?” Langs said. “This is very hard for us. It’s like being asked, ‘When did you stop beating your wife?’ ”

Though the company denied any wrongdoing in the 1996 Justice Department suit, Langs said the experience spurred Ameriquest to step up its funding for community causes and borrower education. The settlement called for the company to spend $1 million on education. Ameriquest used the money to create a nonprofit group, and has continued to support it, helping to pay for consumer booklets, videos, a Web site and housing conferences.

And the company is raising its profile. After avoiding the media and shunning industry trade groups, Ameriquest recently hired a public relations firm and is approaching rivals about forming a new alliance to focus on the industry’s problems.

One exception to the new openness policy, however, is Arnall, 62, the Paris-born real estate developer who owns about 70% of Ameriquest.

Arnall declined to comment.

But he has used his money over the years to voice his views. He and his company have contributed about $391,000 to Gov. Davis since 1996 and thousands more for other Democratic candidates over the years. Arnall served 16 years on the Board of Trustees of California State University, stepping down in 1998. He’s been an active philanthropist, focusing on education and Jewish causes in Southern California.

Arnall started Ameriquest in 1988 as an arm of Long Beach Savings & Loan. When banking regulators frowned on plans to expand then-new sub-prime lending nationwide, the thrift decided in 1994 to surrender its federal charter and convert into a private mortgage lender.

In 1997, the company spun off its wholesale division in a public offering as Long Beach Mortgage Co., which is now part of Washington Mutual. Arnall pocketed more than $100 million in selling the division. Since then, Ameriquest, the renamed retail business, has quadrupled in size.

Ameriquest officials hope that they can resolve ACORN’s issues at an April 28 meeting, which was set after last month’s protest.

Langs notes that ACORN has been the only consumer group to focus on Ameriquest. Other than the 1996 Justice Department action, Langs said the company has not been the subject of any state or federal probes.

ACORN leaders are cautiously optimistic, promising to tone down the protests until the meeting.

“We realize that Ameriquest is not the only one, but they are a fair target because they are in more of our communities and affect more of our constituents,” Hurd said. “They aren’t off the hook yet.”

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Ameriquest Mortgage Co. at a Glance

Headquarters: Orange

Chairman: James Brazil

President: Kirk Langs

Ownership: Wholly owned by privately held Ameriquest Capital Corp., which is 70%-controlled by developer Roland Arnall.

Industry: Sub-prime mortgages to borrowers with poor credit and/or low income.

Market share: 3% (nation’s largest)

Employees: 4,000, including 800 in Orange County

Total annual loans: $5 billion

Branches: 247 nationwide

Typical Ameriquest Loan