By Kirstin Downey
Washington Post Staff Writer
Tuesday, January 24, 2006; D01
State prosecutors and lending regulators in 49 states and the District have reached a wide-ranging $325 million settlement with Ameriquest Mortgage Co., the nation's largest lender to home-loan borrowers with poor credit, to resolve allegations that the company defrauded and misled consumers.
It is the second-largest consumer protection settlement in U.S. history, following the $484 million predatory lending agreement reached in 2002 with Household Finance Corp.
The Orange, Calif.-based company has also agreed to major changes in how it does business. Its practices will be independently monitored to ensure the company complies.
More than 240,000 U.S. consumers will benefit from the settlement to make up for losses they suffered after getting loans from Ameriquest, and they will receive a minimum of $600 each, prosecutors said. They said an additional 485,000 borrowers nationwide might also qualify for compensation under the settlement, depending on the circumstances.
"This is a huge settlement, but we believe Ameriquest did a lot of damage to consumers," said Maryland Attorney General J. Joseph Curran Jr. (D).
At a news conference in California, state law enforcement officials said that Ameriquest grew and profited by giving loan officers financial incentives to sign consumers to loans that often hurt them. They said they found some cases in which people with good credit who qualified for lower interest rates got higher rates, many cases in which people were promised lower rates but charged higher rates, and numerous instances in which borrowers were encouraged to falsely state they made more money than they did so that they could borrow more than they could afford.
"The culture was to sell, sell, sell and do whatever it takes to sell, sell, sell," said Iowa Attorney General Tom Miller, who led the task force.
In the agreement, Ameriquest denies all the allegations raised by the states. Yesterday, the company declined comment, but on Friday, it released a statement saying, "This agreement is good for consumers and good for the company. We worked closely with the states to address their concerns. These improved business practices will enhance our ability to serve our customers."
In Maryland, at least 3,500 Ameriquest borrowers will receive compensation, out of 25,000 Ameriquest borrowers in the state who may be eligible for compensation. They will share in a pool of about $7 million. In the District, about 336 people may be eligible for compensation, sharing in a pool of about $120,000. Regulators will contact customers who could be eligible.
Virginians are not affected by the agreement because Ameriquest did not do business in the state.
Maryland resident Mona Hutchinson, 43, said she and her husband, Irving, 55, lived in a D.C. row house with their four children when they were approached by an Ameriquest loan officer who told them they were at risk of foreclosure. They had fallen two months behind on their mortgage because Hutchinson, a bus driver, had gotten ill following a miscarriage, and her husband had been working fewer days at his construction job because of cold weather. The man was so nice, they invited him for dinner, and he refinanced their home. He reported their income was $50,000 a year, even though they made only $22,000 a year, so they would qualify, Hutchinson said in an interview.
Soon their mortgage payments rocketed from $427 a month to more than $900, with an adjustable-rate mortgage that gyrated from month to month. They went into bankruptcy and then foreclosure. They were sued by Ameriquest, which wanted to take possession of the home. The Hutchinsons' marriage broke up under the stress and they have separated. Her husband remains in the family home, but they face years of additional litigation.
"The terms of the loan were overwhelmingly not in the Hutchinsons' best interest," wrote D.C. Superior Court Judge Anna Blackburne-Rigsby in a recent ruling in the family's favor. The family is being represented by the Neighborhood Legal Services Program. Ameriquest has appealed the ruling.
State officials said that Roland E. Arnall, Ameriquest's founder and principal shareholder, a major White House campaign contributor who has been nominated to be U.S. ambassador to the Netherlands, had participated in the settlement talks. Several senators on the Senate Foreign Relations Committee had urged Arnall to resolve the dispute.
"He made himself available and apologized for misdeeds," said California Attorney General Bill Lockyer. "What happens with his ambassadorship nomination is up to the Senate and the White House."
Andy Fisher, a spokesman for Sen. Richard G. Lugar (R-Ind.), chairman of the Senate Foreign Relations Committee, who has aggressively pushed Arnall's nomination, said the nomination is "pending on the floor of the full Senate," and that there has been no change in status.
Consumer advocate Ira Rheingold questioned whether Ameriquest would abide by the business-practice changes it has pledged to make. "Ameriquest has been notorious a long time," he said. "It's important to see how aggressively it will be monitored."
In the news conference, prosecutors acknowledged that some Ameriquest borrowers would never truly be made whole. For example, those who had their credit ruined after they were lured into loans they could not afford have no legal recourse, they said.
"We applaud the attorneys general for taking action on behalf of American homeowners, but there are so many loans involved here that consumers are likely to receive restitution for only a small portion of their claims," said Boston lawyer Gary Klein, who is pursuing a class-action lawsuit against Ameriquest. There are more than a half-dozen other pending class-action cases in other courts, he said.
Under the agreement, Ameriquest loan officers will be required to tell borrowers such things as what a loan's interest rate will be, how much it could rise and whether the loan includes a prepayment penalty. Loan officers who do not make that disclosure will be subject to discipline. The company would also be forbidden from giving sales agents financial incentives for pushing consumers into higher-interest loans or prepayment penalties.