Lender, Advocacy Group Team On Subprime Mortgages

In an unusual alliance, lender Ameriquest Mortgage Co. in Orange has joined with a community group that denounced it to provide $360 million in home loans for thousands of low-income families in 10 cities.

Officials of Ameriquest and the Association of Community Organizations for Reform Now, a combative group known as ACORN, announced the three-year pilot program Wednesday.

It offers home borrowers protection from lending practices considered by policymakers to be abusive, such as excessive interest rates and fees, prepayment penalties and balloon payments.

Borrowers, in turn, must participate in ACORN’s financial counseling and education program.

The home loans will be available starting in early September to an estimated 10,000 families in Los Angeles; Albuquerque; Baltimore; Chicago; Dallas; Houston; Jersey City, N.J.; Oakland; Philadelphia; and St. Louis.

“ACORN and Ameriquest will unite in helping families gain high-quality housing, with a range of consumer safeguards and education that will also help them achieve long-term financial security,” said Kirk Langs, president of Ameriquest.

The accord came after months of negotiations between top officials of Ameriquest, one of the nation’s largest lenders to people with damaged credit histories, and ACORN, known for its street protests and sit-ins against big companies.

It also comes at a time when abusive home-lending practices are in the public spotlight. Policymakers are looking at ways to curb so-called predatory lending, in which some finance companies and other lenders seek out low-income, minority and elderly borrowers and charge them what are considered unfairly high interest rates and fees.

Federal law defines high-cost mortgage loans as those with interest rates that are 10 or more percentage points above the yield on Treasury securities with the same term.

The high-cost loans, while legal, can expose homeowners to unaffordable mortgage payments, loss of their equity and even loss of their homes in foreclosure.

In March, ACORN members stormed into an Ameriquest office outside Washington and picketed the Washington offices of Salomon Smith Barney, the Wall Street powerhouse that has helped finance several large companies making so-called subprime loans to people with tarnished credit.

An ACORN official said at the time that Salomon Smith Barney was targeted because it is one of the largest purchasers of loans from Ameriquest, which has about 250 offices nationwide that make about $5 billion in loans a year.

Last summer, Salomon Smith Barney raised nearly $800 million to buy more than 6,200 mortgages from Ameriquest with an average interest rate of 9.56%, roughly 2 points higher than conventional mortgages.

ACORN also 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.

Ameriquest denied that the company had engaged in predatory lending and cited its support for consumer education programs aimed at low-income and minority homeowners. Ameriquest also said that its loan fees are among the lowest in the sub-prime industry

Duncan King, a spokesman in New York for Salomon Smith Barney, declined to comment on the ACORN-Ameriquest program.

There was no mention of the episodes at Wednesday’s news conference, only smiles all around and talk of cooperation from Langs, ACORN President Maude Hurd and Wade Henderson, executive director of the Leadership Conference on Civil Rights.

Negotiations between the two sides began in April. Hurd described them as long and hard, with ACORN and Ameriquest starting “from completely different directions.”

In addition to providing the $360 million, Ameriquest also promised to adopt a new code of conduct that requires it to provide borrowers with full and timely disclosure of loan terms and conditions in plain English and restricts practices that ACORN had called abusive.

Langs said that he expected the new program to put Ameriquest at a competitive disadvantage in the subprime mortgage industry, but that he hoped other lenders would eventually follow its lead.

Howard Glaser, senior vice president for government affairs at the Mortgage Bankers Association of America, said of the new program, “We’re glad that they’ve resolved their particular issues.”

However, he added, the trade group prefers an industrywide approach that would, among other things, change the mortgage lending process to make it easier for consumers to understand.