DENVER - Attorney General John Suthers announced today that his office has joined 49 other states in concluding a consumer protection investigation against Ameriquest Mortgage Company. In reaching a settlement with Colorado and the other states, Ameriquest, the nation’s largest sub-prime lender, has agreed to pay $295 million in restitution to consumers and to make sweeping reforms to its lending practices.
“The investigation revealed that Ameriquest employees deceived consumers to sell mortgage refinances,” Suthers alleged. “Their deceptive, high-pressure sales tactics, which were used to meet sales quotas, were induced by a hefty commission structure. Our settlement should correct these practices and entitle over 12,500 Colorado consumers to restitution payments.”
The amount of restitution an individual consumer receives will depend on a number of factors, including the date and amount of their loan with Ameriquest and the total number of consumers who actually participate in the restitution funds. Colorado expects to receive between $8 million and $10 million in restitution for its consumers.
In the settlement, Ameriquest denies the States’ allegations of predatory lending, but agreed to pay $295 million in restitution and to implement a battery of new standards to prevent a recurrence of the problems found by the States.
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 with payments based on a formula set by the settling states. Consumers do not need to take any action at this point to pursue recoveries – they will be contacted later by States in the months ahead as specific recovery terms and plans are determined.
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.
Some of the changes in lending practices required of Ameriquest include:
- Providing full disclosure regarding interest rates, discount points, prepayment penalties, and other loan or refinancing terms.
- Providing the same interest rates and discount points for similarly-situated consumers.
- Not paying sales personnel incentives to include prepayment penalties or any other fees or charges in the mortgages.
- Overhauling 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 get second opinions on appraisals, and prohibiting Ameriquest employees from influencing appraisals.
- Not encouraging prospective borrowers to falsify income sources or income levels.
- Providing accurate, good faith estimates of costs and rates.
- Limiting prepayment penalty periods on variable rate mortgages.
- Not engaging in refinancing solicitations during the first 24 months of a loan, unless the borrower is considering refinancing.
- Using independent loan closers.
- Adopting policies to protect whistle-blowers and facilitate reporting of improper conduct.
The agreement also provides for appointment of an independent monitor to oversee Ameriquest’s compliance with the settlement terms. The 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 during the next five years. Ameriquest will pay the monitor’s costs.
Today’s development culminates approximately two years of investigation by the Attorneys General, state banking regulators and local prosecutors as well as a year of settlement negotiations.
Law enforcement officials and regulators initiated their investigation after receiving hundreds of complaints from Ameriquest customers across the country. The ensuing 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.