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Ameriquest May Refund $295 Million

A proposal to settle claims of overcharges requires the lender to change its practices.

December 14, 2005|E. Scott Reckard and Christian Berthelsen | Times Staff Writers

Ameriquest Mortgage Co. would overhaul its business practices under supervision of an outside monitor to settle allegations by 33 states that it overcharged its home loan customers and pressured appraisers to inflate property values, according to a draft of the settlement.

The proposed deal includes a payment of $325 million -- $295 million to repay borrowers and $30 million to cover the cost of the states' investigation, according to a copy of the proposal obtained by The Times. It would be the second-largest settlement of its kind, after Household International's $484-million agreement in 2002 with attorneys general for all 50 states.

Once approved, the deal is expected to help clear the way for company founder Roland E. Arnall to be confirmed as ambassador to the Netherlands. A Senate vote on the nomination was sidelined after Democrats on the Foreign Relations Committee said Arnall's company should first settle the probe.

State officials who negotiated for months with the Orange-based lender had hoped that both sides would approve the deal by the end of this week. But the current version, the fifth revision of the deal, was written by the states, and Ameriquest isn't satisfied yet, said Iowa Atty. Gen. Tom Miller, the leader of the multi-state task force.

"Some terms still could change," Miller said Tuesday, predicting the final agreement won't be signed until January.

Ameriquest spokesman Chris Orlando said that although the settlement wasn't complete, the company believed that further discussions would yield a "well thought-out, comprehensive agreement that is good for consumers and fair to the company."

The draft proposal provides, for the first time, details of provisions that had been described only in general terms by representatives of the company and the states. It would:

* Reshape Ameriquest's compensation practices, barring the company from rewarding employees for jacking up loan fees and interest rates and adding penalties for paying off a loan early.

* Place restrictions on what loan agents can tell borrowers, requiring them for example not to say their loans are "better," "lower than" or "competitive with" other lenders unless that is true.

* Attempt to keep Ameriquest loan agents from pressuring appraisers to inflate home values by barring them from discussing valuations with the people performing them and by requiring regular reviews of appraisers' work.

* Require the appointment of an independent monitor, funded by the company, "with broad discretion to review Ameriquest's operations to ensure that the company complies with the terms of this settlement."

Ameriquest previously has reported setting aside $325 million for the settlement. The draft proposal includes the first details of how that would be spent: $230 million to repay borrowers, $65 million that states would use for additional borrower restitution or replacement loans and $30 million for the states' costs.

People familiar with the negotiations cautioned that terms, including the provision for an outside monitor, were still subject to change.

Ameriquest is one of the nation's biggest lenders in the fast-growing "sub-prime" market to people with credit blemishes, frequent job changes or other issues that prevent them from getting traditional "prime" mortgage loans. These customers are considered to have above-average risk, and they pay higher interest rates and fees as a result.

Former Ameriquest loan officers have told The Times that relentless pressure to make loans created a "boiler room" atmosphere at the company, leading loan agents to deceive customers and push appraisers to inflate property value estimates to help close deals.

At a Senate hearing this fall, Arnall conceded that "some of our employees did not do the right thing" but that the company had taken action to prevent abuses from occurring again.

"There already is general agreement on a set of prospective measures that will be a model for the lending industry," he told the committee.

Several attorneys general have said the settlement's "best practices" would go well beyond those found in earlier agreements when sub-prime lenders ran afoul of regulators and community groups. In one such case, Ameriquest made peace with a critical nonprofit group, the Assn. of Community Organizations for Reform Now, in 2000 by pledging to adopt practices that would serve as a model for the industry.

Consumer advocates said the provision for an independent monitor was key to the agreement. The only way to ensure that the settlement is "not merely a piece of paper" is for the states to make sure that an aggressive monitor gets appointed -- and then be willing to reopen the case if the monitor finds compliance problems, said Ira Rheingold, general counsel of the National Assn. of Consumer Advocates, which represents attorneys who frequently sue lenders.

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