Ameriquest Mortgage must reform lending practices and pay $325 million -- including $2 million to Iowans.
DES MOINES. Attorney General Tom Miller announced today that the Polk County District Court has approved a judgment ordering Ameriquest Mortgage Company, the nation's largest sub-prime lender, to pay $295 million to consumers and make sweeping reforms of practices that states alleged amounted to predatory lending.
"Iowa consumers are expected to receive about $2 million in the settlement," Miller said. "It's the largest consumer restitution in state history."
Miller said court filings yesterday formalized an agreement between states and Ameriquest that was announced in January. Iowa's lawsuit was filed Tuesday alleging consumer fraud and other violations by Ameriquest, and a Consent Judgment was then presented for Court approval of the settlement. District Court Judge John D. Lloyd approved the Consent Judgment.
Similar court action yesterday was expected in states all over the U.S. Ameriquest also will pay a total of $30 million to 49 states and D.C. that are participating in the settlement.
"We alleged that Ameriquest engaged in unfair and deceptive practices that harmed consumers," Miller said at a news briefing in Des Moines. "This is a landmark agreement that will change Ameriquest's practices, and it will set standards we expect other mortgage lenders to follow."
Miller said the $325 million nationwide total Ameriquest payment ranks as the second-largest state or federal consumer protection settlement in history, after the $484 million predatory lending agreement reached in 2002 between most states and Household Finance Corporation, another multi-state investigation and settlement led by Miller. Iowa consumers received about $1.3 million in the Household case.
In the Ameriquest case, the states alleged that Ameriquest employees deceived consumers as part of high-pressure tactics to sell mortgage refinancings. They said high-pressure sales tactics were used to reach desired sales levels and high monthly individual sales quotas.
Miller said Attorney Generals, financial regulators and California district attorneys initiated their investigation after receiving hundreds of complaints from Ameriquest customers across the country. Improper practices alleged by the states included: inadequate disclosure of prepayment penalties, discount points and other loan terms; improperly influencing and accepting inflated appraisals; and encouraging borrowers to give inaccurate or inflated income or employment information to obtain loans.
Ameriquest denies all the allegations raised by the states, but the company agreed to be bound by a battery of new standards to prevent what the states alleged were unfair and deceptive practices. The reforms include: changing how appraisals are handled; providing full disclosure regarding interest rates, discount points, prepayment penalties, and other loan terms; and not paying incentives to sales personnel to include prepayment penalties or any other fees or charges in the mortgages.
"We are confident Ameriquest will fully comply with our laws and regulations in the future," Miller said. "Ameriquest already has instituted many changes, and an independent monitor will be watching company practices carefully. So will the states."
Miller said the independent monitor approved by the States - led by former Mississippi Attorney General Mike Moore - already has begun visits and reviews of Ameriquest activity.
Ameriquest primarily makes refinancing loans to existing homeowners who are hoping to consolidate credit card and other debt into their mortgage and come out ahead with overall monthly savings. Borrowers who don't have the best credit ratings may turn to sub-prime loans, which often have higher interest rates and other costs.
"Questionable practices in the sub-prime industry can be very harmful to ordinary consumers, who often have little or no economic cushion," Miller said.
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Background on the Ameriquest Agreement:
The settlement with the states includes ACC Capital Holding Corporation (the holding company), and its subsidiaries Ameriquest Mortgage Company, Town & Country Credit Corporation, and AMC Mortgage Services, Inc., formerly known as Bedford Home Loans. The company is based in Orange, California, near Los Angeles.
Forty-nine states are parties to the settlement, with both Attorneys General and financial regulators joining the settlement. (Ameriquest was not licensed in Virginia and did no business there, so Virginia is not a party to the agreement.)
Astronomical growth over the last few years has made Ameriquest the nation's largest sub-prime mortgage lender.
"We uncovered serious problems at Ameriquest that unfairly and substantially affected their borrowers," he said. "However, now we have reached an agreement that will return hundreds of millions of dollars to consumers, and - even more important - it will reform the company's practices. Indeed, I believe this agreement will fundamentally change the company. I am grateful that Ameriquest has reached this agreement with us."
Terms of the Settlement and Injunctive Relief:
About half the 49-page agreement with the states spells out "injunctive relief" -- wide-ranging reforms of the company's lending practices to resolve the concerns of the states.
Under the agreement, Ameriquest is required to:
- Provide the same interest rates and discount points for similarly-situated consumers.
- Not pay incentives to sales personnel to include prepayment penalties or any other fees or charges in the mortgages.
- Provide full disclosure regarding interest rates, discount points, prepayment penalties, and other loan or refinancing terms.
- Overhaul its appraisal practices by removing branch offices and sales personnel from the appraiser selection process, instituting an automated system to select appraisers from panels created in each state, limiting the company's ability to get second opinions on appraisals, and prohibiting Ameriquest employees from influencing appraisals.
- Not encourage prospective borrowers to misstate income sources or income levels.
- Provide accurate, good faith estimates.
- Limit prepayment penalty periods on variable rate mortgages.
- Not engage in refinancing solicitations during the first 24 months of a loan, unless the borrower is considering refinancing.
- Use independent loan closers.
- Adopt policies to protect whistle-blowers and facilitate reporting of improper conduct.
The agreement also provides for appointment of an independent monitor to oversee Ameriquest's compliance with the settlement terms. The monitor will have broad authority to examine Ameriquest's lending operations, including access to documents and personnel. The monitor will submit periodic compliance reports to the Attorneys General during the next five years. Ameriquest will pay the monitor's costs.
Payments by Ameriquest:
The company will pay $325 million - $295 million for consumer restitution, and $30 million to settling states to cover their costs in the case and fund consumer education and consumer protection enforcement programs.
Consumers do not need to take any action at this point to pursue recoveries - they will be contacted later by states or the settlement administrator in the months ahead as specific recovery terms and plans are determined.
Of the $295 million in restitution, $175 million will be distributed in a nationwide claims process to eligible Ameriquest customers who obtained mortgages from January 1, 1999, through April 1, 2003, with payments based on a national formula set by the settling states.
Another $120 million in restitution will be allocated to the settling states based on the percentage of total Ameriquest loans (measured in dollars) held by consumers in each state. Iowa's share of the $120 million is $552,000. The funds will be used to compensate Ameriquest customers who obtained mortgages between January 1, 1999, and December 31, 2005. Each settling state will determine which customers in its jurisdiction are eligible to receive payments from this restitution fund.
The States' Investigation:
Iowa Attorney General Tom Miller led the group of states. The group of states that negotiated the agreement are: the attorney general offices of Iowa, California, Washington, New York, and Illinois; the New York State Department of Banking; and California district attorneys. The executive committee of states leading the matter included those states and also the attorney general offices of Minnesota, Arizona, Texas, Massachusetts, New Mexico, and Connecticut, and the financial regulators of Washington, Nebraska, New Hampshire, and Florida. Miller said the Minnesota Attorney General's Office played a strong early role in the matter, and Minnesota Assistant Attorney General Prentiss Cox led the group initially. Since June 2005, Iowa Assistant Attorney General Patrick Madigan has led the group of assistant attorneys general and financial regulators who investigated and negotiated with Ameriquest.
Miller said Ameriquest was forthcoming in providing documents and other information during the investigation and that the states and Ameriquest worked extraordinarily long hours to reach the agreement.
The settlement was joined by officials of 49 states and the District of Columbia, and a group of six California District Attorneys. (Virginia is not a party because Ameriquest did no business there.) Attorneys General for 49 states and DC joined the agreement, as did financial regulators for 45 states and DC. In a few states, financial regulators did not participate because they do not have jurisdiction, or no such regulator exists in the state.