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Ameriquest obtains funds from Citigroup

The sub-prime lender gives the banking giant options to buy some mortgage operations.

March 01, 2007|E. Scott Reckard | Times Staff Writer

Citigroup Inc. bolstered the finances of the Ameriquest companies Wednesday by providing new funds, setting up a major credit line and getting an option to buy some operations of the specialist in high-cost mortgages to high-risk buyers.

Los Angeles billionaire Roland E. Arnall, Ameriquest's principal owner and the U.S. ambassador to the Netherlands, also will provide a cash infusion, the Orange-based sub-prime lending company said. It didn't specify how much new capital would flow into the businesses.

Citigroup also would become the chief "warehouse" lender for the operations, providing credit to fund loans and hold them until they are packaged into mortgage-backed securities.

The deal would strengthen ACC Capital Holdings Inc., the parent for Arnall's mortgage operations. It comes as many sub-prime competitors are reporting losses, forcing some to sell themselves or shut down.

Analyst Matthew Howlett at Fox-Pitt, Kelton said ACC Capital had been pinched by shrunken margins on loan sales and by demands by loan buyers that it take back mortgages that quickly went into default.

The plan to sell off pieces of the business signals just how far the Arnall empire, once the largest in the sub-prime mortgage industry, has declined.

At ACC Capital, the top sub-prime lender during 2005, loan originations plunged 61% last year to $29.5 billion, dropping it to eighth place, according to Inside B&C Lending.

Citigroup received options to buy Argent Mortgage Co., which makes loans through a network of brokers, and a company that handles billing and collecting on $65 billion of mortgages originated by Argent and Ameriquest Mortgage Co.

The options to buy don't extend to Ameriquest Mortgage Co. itself.

The weakening housing market and higher interest rates have roiled the once-profitable sub-prime business, which now faces a host of borrowers who can't afford their loans and can't refinance. Amid rising defaults, investors are spurning the riskiest mortgage-backed bonds, loan buyers are forcing originators to repurchase bad loans and Wall Street firms have cut off funding to some lenders.

David Olson of Wholesale Access Inc., a consulting firm, expressed surprise at the deal, saying Citigroup's own research showed Ameriquest and Argent loans had high default rates.

But ACC Capital Chief Executive Aseem Mital said the company "has made great strides in addressing the challenges facing an industry undergoing fundamental changes."


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