AG REILLY, DIVISION OF BANKS ANNOUNCE $325 MILLION SETTLEMENT WITH AMERIQUEST MORTGAGE COMPANY
Massachusetts Ranks Seventh in Terms of Consumer Restitution
The settlement, reached between Ameriquest and Attorneys General and banking and financial regulators from 49 states and Ameriquest, stems from an intensive investigation into Ameriquest, the largest subprime lender in the country. The settlement provides a window into the high pressure sales tactics company representatives use to lure consumers, many of them low-income, into refinancing an existing mortgage.
"A pattern of consumer deception and fraud ends right here with this settlement," AG Reilly said. "This company promised cheaper monthly payments, better terms and cash on time. Instead, consumers only got higher rates, prepayment penalties and large point charges. With this settlement, approximately $12 million dollars will be returned to Massachusetts consumers Ameriquest cheated."
Today's announcement follows a multi-state investigation led by several state Attorneys General, including AG Reilly, alleging that Ameriquest violated state laws by misrepresenting loan terms and failing to disclose material information to borrowers. The multimillion dollar settlement comes after more than two years of investigation by the Attorneys General, state banking regulators and local prosecutors -- and several months of settlement negotiations.
"The Division of Banks has had a long-standing policy of zero-tolerance for predatory or abusive lending practices through our strong consumer protection regulations and strict enforcement," Banking Commissioner Antonakes said. "This is an important settlement that will result in even greater protections for consumers."
Massachusetts ranks seventh among the 49 participating states in amount of restitution its consumers will receive. This money, estimated at $12.2 million, will be returned to consumers harmed by Ameriquest practices.
"I am pleased that Massachusetts consumers will receive the restitution that they are entitled to," said Beth Lindstrom, Director of the Massachusetts Office of Consumer Affairs. "Going forward, clearer disclosure and product awareness will better ensure that consumers understand the mortgage they are getting into."
Ameriquest's astronomical growth over the last few years has made the company, based in Orange, California, the nation's largest subprime lender, funding a record $41 billion in mortgages in 2003. Ameriquest sponsors some of the most widely-viewed events in the nation, including last year's Super Bowl Halftime Show, Major League Baseball's All-Star game, NASCAR tournaments, and the current Rolling Stones tour. The Texas Rangers now play at "Ameriquest Field." Here in Massachusetts, Ameriquest has 10 branch offices.
Several Massachusetts consumers, many of them facing financial difficulties, reported they contacted Ameriquest after receiving direct mail from the company, or after seeing an Ameriquest television advertisement encouraging them to call and learn more about how to reduce their mortgage payments. Ameriquest promised the homeowners certain refinance loan terms to reduce their existing mortgage payments. When consumers finally closed on the loans, the terms were often significantly different.
- A Whitman resident complained that Ameriquest inflated the value of her house to get her family to borrow more money. Ameriquest then wrote her a high-interest, adjustable rate mortgage, but promised that she could refinance again and get a fixed rate loan within six months. Ameriquest did not live up to its promise so, the consumer refinanced her home on her own with another company, but then had to pay Ameriquest a prepayment penalty of about $6,000. Many other consumers have complained to the AG's Office that Ameriquest misled them about having to pay a prepayment penalty to be freed from the loan.
- Another homeowner from Kingston reported that she signed for a new loan that, unknown to her, carried an interest rate 1.5 percent higher than the seven percent rate she was promised. This homeowner also said that Ameriquest significantly inflated her husband's income without their knowledge, clearing the way for them to get approval for a mortgage that they might not otherwise qualify for. Because Ameriquest failed to provide any documentation prior to closing, neither the homeowner nor her husband knew the actual loan terms until after they had signed the contract. As a result, the family's monthly mortgage payments have increased by about $300 a month.
AG Reilly's Consumer Complaint Hotline and the Division of Banks have heard from close to 200 Massachusetts homeowners with complaints against Ameriquest. Consumers' most common complaint is that the company promised them loans on more favorable terms than they actually received. Many consumers reported that they were not given any paperwork until well after they had closed the loan.
Today's settlement includes significant changes in the way Ameriquest does business with consumers. Under the terms of the settlement, Ameriquest is:
- Prohibited from fabricating and inflating income statements; making misleading claims about the terms and benefits of Ameriquest loans, including the available interest rates, whether the loan will reduce mortgage payments, closing costs and points, and pre-payment penalties; and obtaining, creating or demanding inflated appraisal reports.
- Prohibited from resoliciting existing customers during the first two years after they close their loans with Ameriquest unless the customer seeks to refinance either with Ameriquest or a new lender.
- Required to reimburse customers for prepayment penalties if Ameriquest included the penalties in the loan without the consumer's knowledge.
Ameriquest has also agreed to a strong monitoring program to prevent a repeat of its predatory practices.
This isn't the first time Ameriquest has been accused of predatory lending. In the company's previous incarnation as Long Beach Mortgage Company, the federal Department of Justice required the lender to pay $3 million to resolve allegations that it was charging higher rates to African Americans, Hispanics, women and elders.
Under the terms of this settlement, Ameriquest will pay $325 million - $295 million for consumer restitution, and $30 million to settling states to cover their costs.
Consumers do not need to take any action at this point to pursue recoveries - an administrator for the states will contact them later after specific recovery terms and plans are determined.
Of the $295 million in restitution, $175 million will be distributed to eligible Ameriquest customers nationwide who obtained mortgages from January 1, 1999, through April 1, 2003, with each consumer's payment based on a 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 and 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 the state are eligible to receive money from this restitution fund.
Individual states' exact share of restitution funds has not been determined, but a reasonable estimate is that Massachusetts consumers will receive a total of approximately $12 million. Today's settlement is expected to be filed in Suffolk Superior Court within 45 days.
This settlement is the second largest ever reached with a lending company, and the third largest consumer protection settlement with any company. In 2002, Massachusetts and other states obtained a $484 million settlement with Household International, also known as Household Finance, for predatory lending practices. That settlement resulted in more than 11,000 Massachusetts consumers receiving refunds totaling $13.5 million. It also required Household to change the way it did business.
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.
Assistant Attorneys General Pamela Kogut and Judith Whiting of AG Reilly's Consumer Protection Division (CPAD) are handling this case.