TRENTON
– New Jersey has entered into a
multi-state settlement agreement with
Ameriquest Mortgage Company, the nation’s
largest sub-prime lender, under which
Ameriquest will pay $295 million in restitution
to consumers across the country and eliminate
lending practices that participating states
alleged were predatory.
Under the settlement terms, Ameriquest
will also pay a total of $30 million to
states participating in the agreement
to help cover the cost of the Ameriquest
investigation, future mortgage-related
consumer awareness programs and enforcement
efforts.
“We believe that Ameriquest engaged
in unfair and deceptive practices –
practices that harmed New Jersey consumers.
However, the company has agreed to make
significant reforms,” said Acting
Attorney General Nancy Kaplen in announcing
the settlement. “This is a milestone
agreement because it will change unfair
lending practices, and will set a new
industry standard – one that we
expect others in the mortgage lending
business to follow.”
The total $325 million payment by Ameriquest
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 the Household Finance Corporation.
“Questionable
practices in the sub-prime industry can
be very harmful to ordinary consumers,”
said Acting New Jersey Department of Banking
and Insurance Commissioner Donald Bryan.
“That’s one reason why this
is so important. Most of these folks have
little or no economic cushion and already
may be holding down two or three jobs.”
Said Division of Consumer Affairs Director
Kimberly S. Ricketts, “Before signing
on the dotted line, consumers are entitled
to know all the facts. This is especially
true with mortgages, where consumers are
borrowing large sums of money. Under this
settlement, Ameriquest will provide full
and complete disclosure to customers so
they know all the costs involved in obtaining
a mortgage, their financial obligations
over the life of the mortgage and other
critical information.”
As part of the settlement agreement with
New Jersey, the other 48 participating
states and the District of Columbia –
Virginia is not a party because Ameriquest
did not do business there -- Ameriquest
must implement a host of reforms to prevent
what the states considered deceptive lending
practices. Among other things, the agreement
requires Ameriquest to :
-
Refrain
from encouraging prospective borrowers
to falsify income sources or income
levels.
-
Provide full disclosure regarding interest
rates, discount points, prepayment penalties
and other loan or refinancing terms.
-
Not engage in refinancing solicitations
during the first 24 months of a loan,
unless the borrower is considering refinancing.
-
Provide the same interest rates and
discount points for similarly-situated
consumers.
-
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 obtain second opinions on
appraisals, and prohibiting Ameriquest
employees from influencing appraisals.
-
Adopt
policies to protect whistle-blowers
and facilitate the reporting of improper
conduct.
The
agreement also provides for appointment
of an independent monitor to oversee Ameriquest’s
compliance with the settlement terms. The
independent 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 of the
participating states during the next five
years. Ameriquest will pay the monitor’s
costs.
Between 1999 and 2005, Ameriquest issued
loans in New Jersey in excess of $4 billion.
While thousands of New Jersey borrowers
who obtained loans during that period are
eligible for restitution under the settlement
agreement, the actual dollar amounts available
to individual consumers are yet to be determined,
and will hinge on the facts of individual
borrower's cases, as well as other variables.
Ameriquest Mortgage is a subsidiary of the
ACC Capital Holding Corporation, which is
also party to the settlement agreement along
with its other subsidiaries including Town
and Country Credit Corporation and AMC Mortgage
Services, Inc., formerly known as Bedford
Home Loans.
Ameriquest Mortgage is based in Orange,
California, near Los Angeles. The company
primarily makes refinancing loans to existing
homeowners who are hoping to consolidate
credit card and other debt into their new
home mortgages and realize overall monthly
savings. Borrowers who do not have the best
credit ratings may turn to sub-prime loans,
which often have higher interest rates and
other costs attached.
According to Acting Attorney General Kaplen,
today’s announcement brings to fruition
approximately two years of investigation
by state consumer protection agencies, banking
regulators and local prosecutors -- and
a year of settlement negotiations.
Law enforcement officials and banking regulators
began their investigation after receiving
hundreds of complaints from Ameriquest customers
in New Jersey and throughout the United
States. Division of Consumer Affairs Director
Ricketts said the investigation uncovered
consumer protection problems in areas governed
by the settlement.
The alleged improper practices included:
inadequate disclosure of prepayment penalties,
discount points and other loan terms; unsolicited
refinancing offers that did not adequately
disclose prepayment penalties; improperly
influenced and inflated appraisals and encouraging
borrowers to lie about income or employment
to obtain loans.
Ameriquest, which has denied all allegations
raised by the participating states, has
already put in place several reforms called
for in the settlement agreement. (For example,
the company began providing the same interest
rates and discount points for similarly
situated consumers even prior to an investigation
by the participating states.)
Under the agreement, Ameriquest will pay
a total of $295 million for consumer restitution.
Consumers need not take any action at this
stage. They will be contacted in the months
ahead as specific recovery terms and plans
are devised.
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. Another $120 million
in restitution will be allocated to the
participating states based on the percentage
of total Ameriquest loans held by consumers
in each state, and will be used to compensate
Ameriquest customers who obtained mortgages
between January 1, 1999 and December 31,
2005. Each state will determine which customers
in its jurisdiction are eligible to receive
money from the restitution funds.
Of the money to be paid by Ameriquest to
help states cover the cost of investigation,
future mortgage-related consumer awareness
programs and enforcement efforts, New Jersey
is to receive $310,000.
The Ameriquest matter was handled in New
Jersey by Deputy Attorney General Sharon
L. Young of the Banking and Insurance Section
of the Division of Law, and by Deputy Attorney
General Frank A. Coppa of the Division of
Law’s Consumer Protection Section.
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