Ameriquest Defends Its Loan Practices

Scores of protesters stormed into an Ameriquest Mortgage Co. office outside Washington last month, chanting slogans such as “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 during the last three years into the nation’s largest retail lender to borrowers with poor credit or low income, the intensely private company finds itself in the middle of a raging national debate over predatory lending.

A growing chorus of legislators, regulators and consumer groups is 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 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, says it is one of the industry’s good guys.

Ameriquest says 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?

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 though ending predatory lending is something upon which everyone can agree, 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% in fees. First Alliance, one of the industry’s most controversial lenders, charged an average of 10% in fees. 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 President Maude Hurd says lenders such as 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 President Kirk Langs. He says the company serves customers whom most banks and traditional lenders refuse to help at any price. 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.

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 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 L.A. 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 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.

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.

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

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.”